K-Green Trust

AmFraser Research, Jan 21

K-GREEN Trust's (KGT) FY2013 revenue was 12 per cent lower year on year, which was largely the result of the exclusion of construction revenue arising from the flue gas treatment upgrade. Revenue from operation and maintenance (O&M) was S$50 million for FY2013, which was S$0.3 million lower than FY2012, due to lower output from the waste-to-energy plants and NEWater plant. This was partially offset by annual adjustment of O&M and power tariffs.

KGT's distribution per unit (DPU) of 7.82 cents per unit translates into a yield of 7.4 per cent. We continue to urge investors to look beyond the advertised yield as it masks a partial return of capital from the gradual decline in service concession receivables. KGT's service concession receivables represent the right to receive fixed and determinable payments from the NEA and PUB.

To put things into perspective, KGT's NAV continues to be on the decline and currently stands at S$1 per unit. As at Dec 12, KGT's NAV stood at S$1.05 ...

With a true free cash flow yield of merely 2.4 per cent, KGT certainly does not warrant as a compelling yield investment, in our view. The trust's declining NAV, the short remaining concession lives of its assets as well as its low true free cashflow yield are our key concerns. We maintain our "sell" recommendation on KGT with a target price of S$0.72.

SELL