INFRASTRUCTURE PLAYS PRESENT a safe haven in a sea of macro-economic uncertainty, says a report by OCBC Investment Research dated Sept 3. Its top picks include Midas Holdings, the supplier of aluminium extrusion profiles used in train carriages; oil and gas infrastructure services firm Rotary Engineering and crane operator Tat Hong.

But market punters have been fixated on Macquarie International Infrastructure Fund of late, a mutual fund which owns four assets. After selling British broadband operator Arqiva for $238.4 million and Canadian Aged Care for $91 million this March, the fund now owns primarily Asian assets. These are a 38% stake in Changshu Xinghua Port (Jiangsu), an 81% interest in Hua Nan Expressway in Guangdong, 20% stake in Taiwan Broadband Communications (TBC) and a 100% stake in Miaoli Wind, a wind farm in Taiwan.

 

For 1H10, MIIF announced a distribution of 1.5 cents per share which will be paid on Sept 9. The fund has no borrowings at the corporate level, cash of 36 cents per share, and NAV is 80 cents. Dividends for 2H10 are expected to be maintained, and Macquarie Research has forecast a full-year dividend of three cents for FY10, rising to 3.4 cents for FY11.

Why have investors suddenly woken up to the value in MIIF? In a tough market, investing in an infrastructure trust offers yield potential and turnaround potential if it sells its assets. And it isn’t quite the same as investing in property via REITs (See Investing Idea on Singapore REITs in Issue 436: Riding the sector’s recovery cycle). For one thing, China isn’t clamping down on infrastructure investment. On the contrary, the country continues to build roads, railroads, renewable energy assets and money is still available to fund their construction.

 

However, the real reason for the interest in MIIF is probably not China but Taiwan. In the past few months, there has been corporate activity in the broadband and cable TV industry on the island. Taiwan-exchange listed Kbro, owned by Carlyle, was sold in July to the Tsai family, who are Taiwan Mobile’s shareholders. Reuters reported that the price was around NT$65 billion ($2.7 billion), implying a 12–13x EV/EBITDA multiple.

 

Macquarie Research says such pricing implies that TBC is worth NT$51 billion. If so, MIIF’s interest is worth $221 million, the research report states. In 2007, the fund acquired the stake for just $161 million. Meanwhile, another Taiwanese broadband company, CNS, is being auctioned off by MBK Partners and Macquarie Bank and Providence Equity Partners were identified by Reuters as bidders. Macquarie Research says that MIIF could sell its stake in TBC to Macquarie and Providence which could use TBC to acquire CNS. A sale of TBC would add 14 cents to MIIF’s cash balance, Macquarie Research says. TBC accounts for 17% of MIIF’s asset base.

 

Already, MIIF’s discount to its NAV has been narrowing, from almost 70% to the current 30%. Macquarie Research has a target of 70 cents for MIIF. On Aug 26, MIIF announced that Macquarie Bank had raised its stake from 8.88% to 9.06%.

 

Genting Hong Kong’s (the old Star Cruise) share price surged 12 cents or 40% in a day on huge volume. No matter what the news, the uptrend is unlikely to be sustained. According to a Bloomberg report on Sept 2, the Philippine Amusement & Gaming Corp is in talks with Malaysia’s Genting Group and three other parties for a casino project, Chairman Cristino Naguiat told reporters in Manila. Harrah’s Entertainment Inc. pulled out of talks, he said, without providing details. 

 

The STI is fast approaching the top end of its sideways range, at Friday’s close of 3,002. This is a resistance level. The index may move above this level in the coming week, but the move may not be sustainable. Support has been established at 2,900.