K-Green Trust

[Musicwhiz]

Business Times - 15 Apr 2011

K-Green Trust posts Q1 net profit of $3.5m

By LYNN KAN

K-GREEN Trust, the only Singapore Exchange-listed green infrastructure business trust, posted first quarter net profit of $3.5 million, 5.4 per cent higher than projected.

Revenue for the three months ended March 31 from its assets was $18.2 million, which was 3.9 per cent lower than the $18.9 million projected.

This notch downwards was due to lower revenue realisations from its Senoko Waste-to-Energy Plant from ongoing flue gas upgrading works.

Upgrading works are set to accelerate and to be completed by June 2012.

The trust also owns two other plants: Keppel Seghers Tuas WTE Plant and the Ulu Pandan NEWater Plant.

The trust, which listed only on June 29 last year, did not make any comparison with the corresponding period in 2010, as accounts from the latter period contain financial information for only one of its three plant assets.

Instead, K-Green's accounts were compared to pro-rated projection figures for the quarter in its introductory document.

Business trusts pay distributions from cash flow earnings of its assets. Free cash flow for K-Green in Q1 was $9.5 million.

K-Green's distribution per unit for the first half of 2011 is likely to be 3.13 cents as forecast in its introductory document. Earnings per unit stand at 0.56 cents.

Unitholders' funds decreased to $704.3 million from $726.1 million. This was a result of $27.1 million in distributions paid out to unitholders, offset slightly by a $3.5 million increase in comprehensive income and the $1.8 million worth of new units for the payment of trustee-managers' fees.

The group's net asset value as at March 31 is $1.12. K-Green closed trading unchanged at $1.04 yesterday.

[Stockerman]

Hi Nick

I am new to KST.
Could u explain how you derived the 2% yield after taking into account depreciation?

Many tks.

3Q results are as expected...but its very low yield is a put-off. I think the yield is around 2-3% after taking into account NAV depreciation ?

[Nick]

A short cut is to just look at their net profit. This is the maximum amount of cash they can distribute without reducing their NAV. The net profit has taken into account the depreciation (or reduction in service receivables). The service receivables is what KGT own ie the right to operate the assets for a fixed number of years. Hence based on FY 2011 EPS of 2.54 cents and 1Q 2012 EPS of 0.56 cents, the earning yield is approximately 2.6% yield. Anything excess being paid came from a return of your capital.

Please correct me if I am wrong.

(Not Vested)

[Curiousparty]

Since the NAV of KGT will keep reducing until it becomes zeros unless new assets are bought, what are the investment merits of infrastructural fund like KGT?

Tks.

[structuredfinancier]

GOOD NEWS!

K-Green has obtained a new S$100m 3 years Revolving Credit Term Loan Facility.

Key covenant:
(i) Keppel Integrated Engineering Limited (KIEL) must retain 30% of the units in KGT
(ii) KIEL must hold 100% shareholdings of KIFM

Breach of the above covenant causes the lender to require KIFM to repay the outstanding loan, and such events wil trigger a cross default under other facilities of KIFM, the aggregate level of facilities that may be affected is estimated to be, as at 4 January 2013, approx S$120m (excluding interest and fees).

Potential acquisition coming up?

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Profit and Loss Analysis

The flue gas treatment upgrade was completed earlier this year and the total construction revenue
recognised to-date for 9M 2012 was $8.1 million. Finance income was $4.5 million for 3Q 2012 and
$13.4 million for 9M 2012, which represents the accretion on the service concession receivables in
respect of the fixed capital cost and recovery components. Revenue from operation and maintenance
(O&M) was $12.6 million for 3Q 2012 and $37.5 million for 9M 2012, representing an 8.8% and 8.4%
increase over the corresponding periods of 2011. This was mainly attributable to the annual
adjustments of O&M tariffs to account for changes in consumer price index (CPI), as well as higher
output from the plants.
The construction expense of $7.7 million relates to the amount of capital expenditure spent on the flue
gas treatment upgrade for 9M 2012. For the same reasons stated for the O&M revenue above, the
O&M costs of $8.8 million for 3Q 2012 was 6.6% higher than the corresponding period last year, O&M
costs for 9M 2012 was $26.3 million which represents a 7.0% increase as compared to 9M 2011.
Electricity cost of $2.2 million and $6.5 million for 3Q 2012 and 9M 2012 respectively also increased as
compared to the corresponding periods in 2011, largely due to higher electricity price since the
beginning of the year.

Trustee-Manager’s fee for 3Q 2012 was $1.3 million and $3.3 million for 9M 2012 comprising a fixed
management fee and performance fee of 4.5% per annum of all cash inflow received by KGT from the
sub trusts. Other operating expense was lower, as compared to the corresponding periods last year
mainly due to higher property tax accrued on the plants in 2011, which was subsequently reversed in
the later part of the year upon revision by the tax authorities.
Profit before tax was $3.7 million and $12.0 million for 3Q 2012 and 9M 2012 respectively. After taking
into account income tax expenses, net profit was $3.5 million for 3Q 2012 and $11.4 million for 9M
2012.

Balance Sheet Analysis

Group unitholders’ funds decreased from $697.2 million at 31 December 2011 to $659.3 million at 30
September 2012. The decrease was mainly attributable to the distribution of $49.2 million paid to
unitholders during the period, partially offset by increase in comprehensive income of $11.4 million.
Total assets of the Group amounted to $675.8 million as at 30 September 2012. This was $41.4 million
lower than the previous year end. Service concession receivables, representing the right of KGT to
receive fixed and determinable amounts of payment during the concession period, decreased by $19.7
million during the nine months period. Debtors of $19.2 million were $2.8 million lower mainly due to
property tax refunds received in relation to the plants. Group total liabilities decreased by $3.5 million to
$16.5 million as compared to $20.0 million in the previous year end, mainly due to payments made to
O&M operators.
At the trust level, notes receivable of $290.1 million represents qualifying project debt securities
(“QPDS”) issued to KGT by Senoko Trust, Tuas DBOO Trust and Ulu Pandan Trust (“Sub-Trusts”) to
fund the acquisition of the businesses in FY2010. These QPDS are eliminated on consolidation.
As at 30 September 2012, the Group had no external borrowing.

Cash Flow Analysis

Cash generated from operations of $13.2 million for 3Q 2012 was derived from the Group’s pre-tax
profit of $3.7 million, after adjusting for non-cash items and changes in working capital of $9.5 million.
Tax paid for the quarter of $0.3 million was significantly lower compared to $4.7 million paid for the
corresponding period in 2011, as the taxes paid in 2011 includes tax liabilities acquired during the
restructuring exercise in 2010. Taking into account income taxes paid, cash flow from operating
activities was $12.9 million for the quarter as compared to $10.2 million in the same quarter last year.
Cash generated from operations for the nine months period was $38.7 million after adjusting for noncash
items and changes in working capital of $26.7 million. Cash flow from operating activities was
$37.7 million after taking into account the income taxes paid in the period. Net cash used in investing
activity of $7.1 million was for the payment of the flue gas treatment upgrading contract. During the
period, the Group made 2 semi-annual distribution payments totaling $49.2 million.

NAV 3Q12 vs FY11: $1.05 vs $1.11
EPS 3Q12 vs 3Q11: 0.56c vs 0.60c

[structuredfinancier]

Seems to be a recent accumulation on this counter over the last few days in particular. KGT hits a 52 wk high yesteday at $1.055. Today $1.06. Something's brewing?

[kayhian]

amfraser initiate sell call on K-Green.

fair value $0.80

[structuredfinancier]

This has been bugging me for some time. KGT is the first investment I made 2+ years ago. I've been accumulating between $0.90 - $1.07. Average approx $1.025. With the 7% returns and the share price at its current approx $1.05 level, the returns have been decent. I liked it cos simple business model. Also, as compared to REITs, KGT contracts (concessions) are longer term and it is also not exposed to macroeconomic shocks since it is almost utility-like.

Theoretically, i understand that based on KGT's dividend policy, makes distributions from its residual cash flows, which are in excess of net profit generated in the year. Correspondingly, this reduces in NAV. Companies should ideally pay out a maximum of their profits so as to be able to maintain/replenish NAV. As what Nick mentioned, you are effectively getting a return from your own capital.

However, practically, KGT is debt-free. With strong parentage of Keppel Corp, doesn't this mean KGT is capable of raising debt to make future acquisitions and in turn boost NAV? Also, shouldn't there be some value in KGT potentially extending or renewing the concessions?

Sincerely appreciate fellow forumers' feedback and guidance.

Thanks,
young investor

[Drizzt]

erm if you look at the three concession senoko is the largest contributor. and the concession is the shortest. not sure how you arrive that the ability to operate is longer than REITs. REITs have land lease of 25-30 years to 99 years or free hold. compare to k green whose concession looks to struggle to last for 10 years.

the assets indicate that it is self liquidating and if you d an XIRR i think the returns to the end of average concession looks to be near 3%, which means alot of the returns come from liquidating the assets.

if i am wrong hope some forumers can correct me

[Nick]

However, practically, KGT is debt-free. With strong parentage of Keppel Corp, doesn't this mean KGT is capable of raising debt to make future acquisitions and in turn boost NAV? Also, shouldn't there be some value in KGT potentially extending or renewing the concessions?

Sincerely appreciate fellow forumers' feedback and guidance.

Thanks,
young investor

Raising debt will not boost NAV. You can only boost equity by raising new equity (rights issue or placement) or by retaining profits. Actually, raising debt will complicate the issue since bankers need to be repaid so a portion of the cash-flow must be channeled back towards amortizing the debt before the asset lifespan matures.