Brokers' Call: Best World International

The Keppel Merlimau Cogen plant on Jurong Island. Keppel Infrastructure Trust's track record of steady distributions backed by utility assets has gained more recognition in recent months.
The Keppel Merlimau Cogen plant on Jurong Island. Keppel Infrastructure Trust's track record of steady distributions backed by utility assets has gained more recognition in recent months.PHOTO: KEPPEL INFRASTRUCTURE TRUST

Best World International

Broker: CIMB

Call: Buy

Target Price: $1.70

China accounts for 48 per cent of Best World International's sales (as per first quarter of 2017), having just overtaken Taiwan as the group's largest market.

While the group's phenomenal earnings growth of more than 100 per cent per annum in financial year 2015 and financial year 2016 was led by Taiwan, it is expected that China can provide the next phase of expansion, driven by increased product acceptance and distributor penetration.

China's first-quarter sales grew by a robust 103 per cent year on year and can continue to deliver that magnitude of growth for at least the next two years on the back of its clear system to educate distributors on sales generation, strong company culture and wide product acceptance.

There is also additional upside potential from full conversion of export sales in China to direct sales.

Keppel Infrastructure Trust

Broker: DBS Group Research

Call: Buy

Target Price: $0.60

Keppel Infrastructure Trust (KIT) has declared a distribution per unit (DPU) of 0.93 cent for the second quarter of financial year 2017 - the eighth straight quarter of steady DPU.

Group revenue was up by 16 per cent year on year and 2 per cent quarter on quarter to $159 million in the same period and distributable cash flows - the key number for KIT - came in at $39 million.

City Gas cash generation was up 30 per cent quarter on quarter in the quarter to more normalised levels as gas tariffs are always adjusted in line with underlying fuel costs after a lag. This is likely to smoothen out over time.

Cash flows from other key assets remained stable and the trust's newest asset, Data Centre One, contributed higher positive cash flows, as rental rates were renewed in line with existing agreements.

Basslink also generated positive funds from operations for the second successive quarter but the trust does not use these cash flows for distribution purposes.

KIT's track record of steady distributions backed by utility assets that generate regulated/ availability-based cash flows irrespective of economic cycles has gained more recognition in recent months.

With the listing of more quality infrastructure business trusts in Singapore, this asset class may reverse its adverse reputation and gain more acceptance in the investment community. This should make acquisitions fructify sooner than later.

A version of this article appeared in the print edition of The Straits Times on July 24, 2017, with the headline 'Brokers' Call'. Print Edition | Subscribe