NP to Improve in 2022
The author is an analyst of KB Securities. He can be reached at moonjoon.chang@kbfg.com. -- Ed.
Maintain BUY and target price of KRW16,000
We maintain BUY and our TP of KRW16,000 for Macquarie Korea Infrastructure Fund (MKIF). Despite a rise in COE (6.23%→6.98%), our TP is unchanged given an increase in 12m fwd DPS (KRW787→KRW800). A profit structure mainly based on long-term contracts and a transparent cost structure offer high earnings visibility. Moreover, we expect 2022E dividend yield of almost 6% (based on current share price).
NP to improve in 2022; Rise in interest cost burden to be limited, even amid a surge in interest rates
For 2022, we estimate NP at KRW317.3bn (+7.1% YoY). Interest income should continue to increase on a full-year basis, thanks to the inclusion of Youngsan Clean Energy and Bomun Clean Energy last year and Incheon-Gimpo Expressway this year. Among 14 infrastructure investment companies subject to public-private partnership (PPP) contracts, 10 are entitled to government support (e.g., minimum revenue guarantees, expense reimbursement). We believe MKIF offers significant downward rigidity in earnings and dividends, as the rise in interest cost burden is likely to be limited even amid a surge in interest rates, thanks to: (1) weighted average debt maturity of around 7 years; and (2) low LTV ratio.
DPS to be higher in 2H22; 2022E DPS of KRW780
We expect 2022E DPS of KRW780 (1H22 DPS at KRW380; 2H22E DPS of KRW400), with dividend yield of 5.7%. That 1H22 DPS of KRW380 was on par with that of 2H21 was a disappointment. However, given a continual YoY increase in DPS since 2017 and 2H22 DPS expected to remain unchanged or come in higher HoH, we believe there is no need for us to lower our expectations for 2022E DPS.
Portfolio of 17 investment assets
MKIF’s asset holdings have increased to 17, thanks to continual investment. Since December 2019, the company’s investment portfolio has come to include new projects such as Dongbuk Line Rail Transit, Busan New Port the Second Rear Road, Youngsan Clean Energy, Bomun Clean Energy, and Incheon-Gimpo Expressway, boosting time to maturity of private investment projects by 3 years (to around 17 years), in addition to going concerns. Thanks to aggressive investment activity, concerns over declines in funds for mid/long-term dividend payments have been receding.