Macquarie International Infrastructure Fund

[KopiKat]

Pan United released their 1H results today and as majority shareholder of CXP, it is always interesting to hear what they have to say:

Although the Port division handled lower volume of steel and other general cargoes, the volume of its other core cargoes of logs, pulp and paper had increased. However, a normalised corporate tax rate of 25%, which took effect from 1 January 2012 following the expiry of a 10-year concessionary tax rate of 12% in FY 2011, higher staff and maintenance costs reduced its profitability.

Coupled with HNE toll rate reduction from 1 June 2012, the proportionate EBITDA for 2Q 2012 may not be in great shape. Looks like it is up to TBC to save the day !

(Not Vested)

Nick,

Thanks for the heads-up... Results will be out on 8-Aug before mkt opens. Let's see how bad it's going to be...
Am expecting the DPU = 2.75ct (likely last time, assuming they don't reduce immediately) ought to provide some short term price support, unless it's real bad...Put on my seat belt + helmet, brace myself for a hard landing.... assuming I don't bail out before then...

[weijian]

Pan United released their 1H results today and as majority shareholder of CXP, it is always interesting to hear what they have to say:

Although the Port division handled lower volume of steel and other general cargoes, the volume of its other core cargoes of logs, pulp and paper had increased. However, a normalised corporate tax rate of 25%, which took effect from 1 January 2012 following the expiry of a 10-year concessionary tax rate of 12% in FY 2011, higher staff and maintenance costs reduced its profitability.

Coupled with HNE toll rate reduction from 1 June 2012, the proportionate EBITDA for 2Q 2012 may not be in great shape. Looks like it is up to TBC to save the day !

(Not Vested)

Hi Nick,
The doubling of corporate tax rate for CXP was already mentioned in the factsheet released last year. In fact, HNE will ALSO have the same doubling of tax rates to 25% in this fiscal year. Both tax rises will impact CXP And HNE's net profits by ~10% and 20% respectively - since dividends can only be paid out of profits, we can estimate similar %impact to dividends.

Currently, TBC makes up almost 50% of NAV in MIIF and contributes about 70% of dividends. So MIIF's fortunes are basically more sensitive to TBC's impact than ever.

Finally, based on current cash hoard (as of 1Q2012) and dividend contribution from the 3assets (HNE's toll rates reduction taken into consideration), the cash will be able to cover the distribution shortfall for another 3 more years (2012-2014).

[Nick]

You are correct Weijian. The dividends for FY 2012 is derived from the underlying assets profits in 2011 so the events in 2012 will only impact their distribution to MIIF in 2013.

TBC is the main guy to watch - any major impact on its distributions will hurt MIIF dividend capacity greatly.

Personally, TBC $45 million distribution is pretty 'heavy' judging by their cash-flow. In order to pay $45 million to MIIF, it needs NT$2.2 billion cash to finance it. I was reviewing their FY 2010 cash-flow statement and this is what I learn:

FY 2010

EBITDA: NT$4.33 billion
Corporate Tax: NT$0.53 billion
Interest Expense: NT$1.41 billion
Net Operating Cash-Flow: NT$2.39 billion

I am assuming the additional borrowing cost is an one-off expense due to refinancing needs.

So it would seem that in FY 2011 with further EBITDA growth, NT$2.2 billion distribution can be easily supported with close to 100% cash-flow payout. I am not very certain what is the with-holding tax rate for distributions made to MIIF from TBC but it should be covered based on FY 2010 cash-flow alone.

However, two issues comes to mind - Firstly, the capex of NT$0.7 - 0.8 billion isn't being funded by cash-flow with such a payout structure. So it is likely, debt will be used to finance capex resulting in ever increasing debt level. This may not necessarily be a bad thing if EBITDA can keep growing so that Debt / EBITDA ratios remains stable. Secondly, there is no room for debt amortization and coupled with ever increasing debt to finance capex, TBC might face refinancing risk every few years. If EBITDA doesn't grow as fast as debt is growing, we might also face credit issues. We can contrast this with HNE and CXP which repay their loan annually reducing interest expense and their debt levels over time. Granted TBC is a 'perpetual' business while the other two are concession based - but is ever increasing debt a good thing ?

I am just playing the devil's advocate here on TBC. I am not saying it will definitely slash its distributions or go bust. Just pointing out some potential risk in this other-wise, well-established business with excellent track record of EBITDA growth. This is a probably a non-issue if Debt / EBITDA can remain stable. Quite curious - what do forummers think of this issue ?

Please feel free to correct my data or misconceptions. I do apologize if my understanding is flawed. My figures came from FY 2011 Asset Book.

(Not Vested)

[Nick]

MIIF ANNOUNCES FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2012

Key Highlights
• Net income of S$19.6 million up S$15.2 million on prior year
• Net Asset Value of S$829.3 million or S$0.71 per share, down S$0.08 per share on previous quarter driven by the revaluation of Hua Nan Expressway
• Robust operational performance across the portfolio, however the adverse impact of the toll revisions at Hua Nan Expressway will continue
• Continuation of share buy-back programme with 22 million shares bought back and cancelled for S$12.4 million
• Interim dividend of 2.75 cents per share declared
• Guidance of 2.75 cents per share for the final dividend of 2012

http://info.sgx.com/webcoranncatth.nsf/V...300588FE5/$file/MIIF1H12Preso.pdf?openelement [Presentation Slides]

http://info.sgx.com/webcoranncatth.nsf/V...300588FE5/$file/MIIF1H12Release.pdf?openelement [Press Release]

http://info.sgx.com/webcoranncatth.nsf/V...300588FE5/$file/MIIF1H12SGXReport.pdf?openelement [SGX Report]

(Not Vested)

[Hotelking]

Lucky never listen to those broking houses that give buy call for this nonsense. TBC cannot perform miracles. Its not a substitute for HNE lousy performance. The best thing shareholders can look forward is the potential sale of their 38% stake in CXP back to Pan United. Current market valuations could yield a decent return to MIIF.

[KopiKat]

Phew... I get a 6mths reprieve...

Can DIY a simple sensitivity analysis using FY11 figures (Dividends Rx by MIIF),

TBC = $29.9M or 2.543ct / share
HNE = $22.5M or 1.915ct
CXP = $5.3M or 0.453ct

Total Shares = 1,174,702,154

For ref, 1H12,

TBC = $24.6M or 2.097ct

If I were to focus only on HNE (yes, I know it's overly simple but right now, that's my main worry) and assume market requires a 10% yield (can vary it for more sensitivity analysis), then a Reduction in Dividend from HNE gives the corresponding Share Price impact,

HNE (-10% to -25%) => Share Price = 50ct to 53ct
HNE (-25% to -50%) => Share Price = 45.5ct to 50ct
HNE (-100% ie become another MiaoLi Winds) => 36ct

The guidance of HNE Revenue being impacted by 20% to 25% can of course impact the ability to pay Div to MIIF, so in the worst case, a 100% impact means Share Price = 36ct using above other assumptions.

Note : Above is overly simplistic, don't rely on it for any Buy / Sell decision

[Nick]

I am estimating the following distributions for FY 2013:

TBC: $45 million
HNE: $15 million
CXP: $5 million

Management fees + Fund Expenses: $10 million

Distributable Income: $55 million or 4.7 cents. I expect the remaining cash pile to partially push the DPU to 5.0 cents. My TBC dividend assumes that capex will be primarily debt financed and they can continue to refinance loans. It is likely share buy back will resume. Alternatively, if HNE reports weaker distributions of approx 10 million, we can expect DPU to drop to 4.5 - 4.75 cents. A compensation paid from the provincial government to HNE will be an upside though.

(Not Vested)

[KopiKat]

My TBC dividend assumes that capex will be primarily debt financed and they can continue to refinance loans.

For FY13, not much of a concern (unless new debts) as their Debt Re-Payment schedule is,

2013 : S$6.5M
2014 : S$100.8M
2015 : S$124.9M
2016 : S$138.5M
2017 : S$477.4M

FY14 onwards can have a huge impact on DPU if they're unable to refinance TBC debts (without looking at TBC Financials, so not sure if they've excess cash over Working Capital).

[Nick]

My TBC dividend assumes that capex will be primarily debt financed and they can continue to refinance loans.

For FY13, not much of a concern (unless new debts) as their Debt Re-Payment schedule is,

2013 : S$6.5M
2014 : S$100.8M
2015 : S$124.9M
2016 : S$138.5M
2017 : S$477.4M

FY14 onwards can have a huge impact on DPU if they're unable to refinance TBC debts (without looking at TBC Financials, so not sure if they've excess cash over Working Capital).

TBC FY 2010

EBITDA: NT$4.33 billion
Corporate Tax: NT$0.53 billion
Interest Expense: NT$1.41 billion
Net Operating Cash-Flow: NT$2.39 billion

The $45 mil distribution (approx 2.2 bil cash out-flow) implies that they have to keep raising new debt to fund their capex (approx 0.7 - 0.9 bil). It is this ability to keep sourcing new debt (like the recent Capex Facility) and refinancing it that might pose a risk. If cash-flow is diverted to fund capex with equity, the distributions will be slashed by a third ! The larger debt facility refinancing will come to play in 4Q 2013 - that will be interesting haha ! Guess it boils down to its ability to keep growing the EBITDA and it helps that this is a perpetual biz.

(Not Vested)

[Drizzt]

BS Vickers downgraded Macquarie International Infrastructure Fund to ‘hold” from ‘buy‘ and cut its target price to $0.58 from $0.62, citing unsustainable dividends beyond 2013.

By 11:49 a.m., MIIF shares rose 1.9% to $0.55, and have gained 3.8% since the start of the year.