AmFraser have some seriously optimistic cash flow projections for MIIF

AmFraser have some seriously optimistic cash flow projections for MIIF hua nan expressway 71

Macquarie International Infrastructure Fund is a 9% yielding infrastructure stock listed on the SGX. I am invested in this and talked about my sweet and sour relationship with this stock a fair bit (read here)

MIIF just announced their latest quarter results. There are some good news in that the tax issues of Taiwan Broadband Communications (TBC) have been settled and the expected losses are immaterial.

However, it was still not clear how the expected moderation by the Chinese government over toll charges for Hua Nan expressway (HNE) will affect MIIF. I have asked for a sensitivity analysis from the Investor Relations but judging by their record they should not do anything about it.

I am positively surprise by the surge in traffic for HNE. Still the level of debts in this stock can be crazy and what we know is that most are not amortized which means that somewhere down the line, earnings by TBC and HNE may need to scale down to pay the massive debts or to get them refinanced.

Still, I read this report from AmFraser with their projection on how the cash flow of the 3 major assets will progress to.(read report here) I find them a tad optimistic. I would rather estimate based on the worst case scenario.

MIIF probably need 75 mil from the 3 assets since they need 65 mil to distribute the 5.5 cents annual dividend. The closest projection is 43 mil + 22 mil + 6 mil equating to 71 mil. We are still a bit short there but not that big of an issue since MIIF still have a cash horde.

Still I will watch this stock closely since the management in the past have made some rather questionable moves, its underlying have debts that could cripple distributions.

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  • Do’Urden

    Drizzt,

    Interesting… I’m invested in this stock too and I’ve done my own analysis. A few points:

    - Earnings don’t scale down to pay debts. Cash flows do. Also, some of their debt is amortizing and factored into future cash flows.

    - Infrastructure assets tend to be very highly geared. Like 20% equity-80% debt, since their long life allows for a lot of growth in earnings/cash flow. MIIF’s assets at 50% are low-gearing in comparison.

    - Doesn’t your worst-case scenario support amfraser? If the assets generate 71m and is only short by 4m, then the large cash hoard more than supports the dividend.

    - Also, don’t forget to reduce the number of shares used in your dividend calculation since they’re buying back. The cash required in future years is closer to 60m than 65m after you take this into account, so the coverage is there.

  • Eric

    Hey.

    What’s a good entry price for this stock? Have been monitoring this stock for a whole but the price movements seem to be fairly stagnant. Is it a good
    Time now to go in or it may have a correction cOmin soon??

    Regards,
    Eric

  • Eric

    Hi drizzt.

    I have been observing this stock for a while hoping a minor correction before jumping but the price have been fairly constant. What do you think is a safe price to go in?

    regards,
    eric

  • Drizzt

    Hi Eric, hard question to answer. the risk of MIIF are debt issues and that is what i will observe. I would compare it versus other stocks on the market. the current yield is amongst the highest on the market, together with sabana and aims amp.

    The upside looks limited and there look to be more downside risk. When i made my first purchase was around 49 cents. so thats a good entry point. but we were hoping it goes down to 40 cent so that we will have more safety.

  • Kent Ng

    Hi Drizzt,

    What is your opinion that if the 3 independent directors (if voted in on 5 Dec’12 SGM) will improve MIIF share price?

    Thx
    Kent

  • Drizzt

    hi Kent, i say vote for new faces! these idiots at MIIF have 7 years to show they can buy or optimise the portfolio. at the end of the day all they can think about is buying back shares when the share price is going up and stop when the share price is going down!

  • Vince

    On the flip side, the new chaps have not told us exactly what they intended to do when they become directors. So how do we know that they are not in it just for the director’s fees? It’s a tough decision and I have not decided yet.

  • Vince

    Hi Drizzt,

    Maybe you can straighten me out on this. You mentioned above that 40 cents is a good entry point for MIIF. But those guys who called for the SGM says that even now at 0.585 it is too low. So if they get their way, poor Eric above will never get to buy his stock.

    I often have this problem. On the one hand I would like my existing stocks to rise, on the other hand, if they rise, e.g., like some of the industrial reits, I won’t be able to buy anymore.

  • Drizzt

    hi Vince, if you are young and you want to collect more good stuff, of couse you want them to languish because you wont be cashing them out anytime soon (are you?)

    value happens when your perception and market’s perception differs. it depends on how strong your conviction is. the market can be wrong for a long time.

    as for MIIF i say less than 50 cent is a good entry because i crave for safety. i dunno how they value it but as a yield investor i look at a 5.5 cent div needing 55 mil can assets pay for it? if not how much diviend can they pay? 40 mil? how much dividend per share does that translate to? what is a good price to get it at a 7% yield? its unorthodox but at the bear minimum i try to be conservative with my estimate so that i don’t get disappointed.

  • Vince

    Yes, I want them to languish. So, no new directors for me. :-) Let the old chaps continue to buy back shares, which can, hopefully improve the dividend yield.

  • Drizzt

    well think of it this way. if they continue to be in poor management, sooner or later you may end up losing your capital. the people who bought at ipo of $1 still have yet to recurperate.

  • Vince

    I was at the SGM. Resolution 1 carried, the other 3 bombed out. So, like it or not, no new directors for the time being.

    A lot of shares have still not reached their pre-financial crisis price yet, and this is one of them.

  • Drizzt

    very very disappointed.

  • Thomas Ooi
  • Drizzt

    hi Thomas, i saw that.