I decide to relook into MIIF, now that they have increase the stake in TBC and price have fallen 17%. Here are the notes:
- Taiwan Broadcasting Corp is out of the assets the best. Bought at a reasonable price. Doesn’t have a concession. This will contribute 50% to MIIF profits.
- Hua Nan Expressway is an asset bought pretty expensive. It is a concession asset and it will eventually ran out. They will have to replace it.
- Changshu Port contributes but is a rather stable asset.
- MIIF on the corporate level do not have any debts. However, on the underlying assets the gearing is almost 50% of underlying assets. Debts are non-recourse to MIIF. However, repayment problems or escalation in payment will reduce cash flow payouts to MIIF. This will limit dividends.
Let us estimate the payouts to MIIF from each of the underlying assets in the long run (FY2012). Current share price $0.49
- The dividend guidance from MIIF is $0.055. That is 11.2% yield. To pay out that, MIIF needs 1297 mil outstanding shares x $0.055 = 71 mil.
- Taiwan Broadcasting Corp (TBC) will contribute SGD 47 mil – SGD 49 mil per year. This is from its 47% share in TBC. Based on the original 20% stake in TBC, in FY 2010, TBC have loan amortization, TBC paid out 13 mil. In FY 2008, TBC have no loan amortization, TBC paid out 18 mil. Going forward, we know that TBC will not be paying loan amortization and that cash flow have risen 10% since then. This works out to 18 x 47.5/20 x 110% = 47 mil.
- Hua Nan Expressway (HNE) will contribute SGD 20 mil per year. HNE have been struggling with a de-tolled expressway. Also in 2014 onwards, loan amortization will increase for HNE, any growth from 2014 onwards are likely to be eaten by the increase in loan amortization.
- Changshu Port (CXP) will contribute SGD 5 mil per year.
- Management Fees are estimated to come up to SGD 10 mil per year.
- Estimated Safe Dividend Potential: 47 + 20 + 5 – 10 = 62 mil. This is equivalent to $0.048 cents. At current price, the yield is 9.6%.
Underlying Debt Levels and Repayment Schedule
- TBC’s underlying debt to proportional EBITDA is 5 times.
- HNE’s underlying debt to proportional EBITDA is 6 times.
I have been flirting with MIIF for the longest time. Although we question the effectiveness of the management, the truth is, no rights issue was needed during a period where so many REITs, business trusts requires that.
The key to buying REITs, business trusts and infrastructure assets is
- Know the return on investment capital or assets.
- Its current price relative to its Net Asset Value
- Know its ability to repay debts, roll over debts and coverage for interest expense.
- How current macroeconomic conditions and business cycle affects them.
This would enable you to determine the margin of safety. Right now, any price below $0.45 looks a good deal for a yield investor. If you are able to get it at $0.40 your yield is in the 10% range. If you get it at $0.35, your yield is in the 11.5% range. If you get it at $0.25, your yield is in the 16% range.
The lower it is the greater the safety. Even bad assets can be good investments.
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