Macquarie International Infrastructure: Attractive Dividend Yield

We just received our MIIF Annual Report. To be honest i have been looking forward to reading it since the presentation slides provided at SGX wasn’t revealing a whole lot of numbers.

Since hitting a high of 1.20, it has retreated to a low of 83 cents last week. In this itself, we can draw a valuable lesson: don’t ever think that the yield of a company can support the company from the onslaught of a massive liquidity sell down. I am of the opinion that dividend yield stocks are not defensive in nature. They are however a good avenue to milk income and gains while waiting for the market to recover.

As with most MIIF annual reports, it can be daunting reading it, since MIIF have both listed and unlisted investments. Its income statement is unlike most.

For FY2007, the frame is put squarely on its divestments and investments. MIIF is taking a shift towards owning more assets in Asia as compared to Europe.

Divestments:

• NMRE – 90 mil
• TanQuid – 187 mil
• Brussels Airport – 107 mil
• DUET,MCG, MIC – 269 mil

Acquisitions:

• Hua Nan Expressway – 295 mil
• Taiwan Broadband Communications – 161 mil
• infoVest Wind – 28 mil

I’m keeping and open mind when it comes to this reshuffle. Sure the risk is enormous. Brussels airport and TanQuid contribute rather sizable income to the overall bottomline. But i do see that moving away from owning listed investments, could invariably provide more yield for investors. With listed investments, some or the gains come from gains through valuation rather than cashflow distribution. A look at page 13 of the annual report will indicate that majority of the cashflow comes from the non-listed entities.

It all means that Hua Nan and TBC have to really be better than those divested. If not, we have just been royally screwed by Macquarie. I have high expectations due to the manager’s bullishness in this shift. firstly, those divested represents nearly 37% of the total investment income.

That is alot of income to replace.

Granted, the last acquisition CAC at 165 mil generated 18 mil in cashflow, which is roughly 10% yield. We would expect that these 484 mil in spending generate 48 mil in investment income. That more or less will be in line with this year’s income.

The net of this deal is a realised income of 170 million. What the management did was to pay down their debts from 379 mil to 178 mil. Right now, their gearing is down to 9% of their assets. So that is a pretty health position they are in, with ample capacity to leverage up to improve yield.

Total distribution income improve from 116 mil to 133 mil. Almost all assets show growth in income generation. I think it is good enough for me that in an inflationary environment, the assets that they are own are more inflation proof compare to that of CitiSpring Trust.

The confusing part is in the cashflow statement. The 163 of operating cashflow generated is used to pay the net 163 mil in investments. 700mil was borrowed and 600 mil was repaid, and the management used the 100 mil to pay out as dividends.

I wish the management could make things simpler. Overall, this is the easiest MIIF annual report that i have read.

Based on last traded price of 83 cents, the PTB ratio is 0.63 times. The investment income for this year have been good. Thus operating cashflow yield is a strong 15%. However, we are projecting MIIF to payout roughly the same 100 mil in FY 08.

MIIF at this price is a good buy. However, I still think much will depend on the management’s selection of assets.