Macquarie International Infrastructure Fund (KimEng)

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Background: Macquarie International Infrastructure Fund (MIIF) is a mainboard-listed mutual fund company that invests in diverse infrastructure businesses in Asia. It owns substantial or majority stakes in Taiwan Broadband Communications (TBC), Hua Nan Expressway, Changshu Xinhua Port and Miaoli Wind.

Recent developments: The lack of acquisition targets prompted MIIF to embark on a series of initiatives in March this year to drive shareholder value. This included the deleveraging of TBC, purchase of additional interest in TBC and buyback of MIIF shares. MIIF announced changes to the board two days ago. The new director and chairman is someone from within the company. We do not expect any major change to the direction of the company.

Key ratios…

Price-to-earnings: 24.6x

Price-to-NTA: 0.7x

Dividend per share / yield: $0.03 / 5.3%

Net cash/(debt) per share: ($0.72)

Net cash as % of market cap: na

Share price S$0.57

Issued shares (m) 1289.2

Market cap (S$m) 734.8

Free float (%) 81%

Recent fundraising IPO: May 2005 (IPO price – $1.00)

Financial YE 31 December

Major shareholders Abu Dhabi Invt Agency – 9.6%, Macquarie – 9.3%

YTD change -3.4%

52-wk price range S$0.485-0.625

Our view:

Income growth via interest cost savings. MIIF subscribed for shares and other instruments issued by Cable TV S.A., the holding company of TBC, for S$143m. Consequently, its economic interest in TBC increased from 40% to 47.5%. The subscription proceeds are used to pare down TBC’s debt and the resultant interest cost savings will benefit MIIF.

Attractive dividend yield. In view of the stronger performance at TBC, MIIF guided for a dividend per share of 2.75 cents for 1H11, which will be paid in September. According to former Chairman John Stuart, the payout is sustainable. Assuming the same level of dividends for 2H11, the yield for the full year could be 9.6%.

Deep discount to book. MIIF has a relatively low gearing of 47% and is still trading at a 30% discount to NAV. It has a cash balance of $138m as of June 2011 after raising its interest in TBC and buying back shares in the open market.