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Keppel Infrastructure Trust Trades Oil Storage For Subsea Cables In FY2025 · Investor Exchange

• 0:02
  Time for another Investor Exchange Podcast. Here are your hosts, Matt and Sally.
• 0:08
  I want to start today by asking you a question about the concept of boring.
• 0:11
  Okay. We spend so much of our time as investors chasing the next massive tech
• 0:15
  breakout, the next crypto spike or, you know, whatever's trending.
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  But when you wake up, turn on the tap, cook your eggs, catch a bus,
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  or send a massive file over the internet, do you ever stop and think about the
• 0:28
  industrial machine that's making all of that happen?
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  Most people don't. And honestly, that is exactly why we love them. Why is that?
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  Because if you aren't thinking about them, it usually means they're doing their
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  job perfectly. Exactly.
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  We are talking about the plumbing of the economy today.
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  Yeah. The unsexy, invisible, but absolutely critical infrastructure that keeps
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  the lights on and the data flowing. And we're going to get specific.
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  We're doing a deep dive into Keppel Infrastructure Trust, or KT.
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  And the timing is perfect. They just released their full year financial results
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  for the year that ended December 31st, 2025.
• 1:02
  That's right. The release came out on February 3, 2026. And our mission today
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  is pretty simple. I don't want to just read a balance sheet.
• 1:10
  We're looking at this strictly from an investor's perspective.
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  I want to scrape away the corporate jargon and just answer the simple questions.
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  Is this company actually making money? Is the dividend safe?
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  And, you know, what's the outlook for 2026?
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  It's a great set of questions because Kett has always pitched itself as this evergreen machine.
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  You know, assets that run regardless of whether the economy is booming or busting.
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  But as we're going to see, even boring businesses can have some pretty exciting
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  drama going on under the hood. They really can.
• 1:41
  So let's not bury the lead. The headline number that jumped out at me was a distributable income.
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  It hit tech F 249.5 million dollars.
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  That is a massive 24.4 percent increase year on year. It is excellent.
• 1:54
  For utility style business, jumping nearly 25 percent is it's really significant.
• 1:59
  OK, but let's unpack this immediately. My alarm bells are ringing.
• 2:01
  A 25% jump for a boring utility doesn't just happen.
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  Did everyone just start using more gas? Or is there some accounting magic here?
• 2:10
  You are right to be skeptical. It's a mix.
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  On one hand, you had much stronger operations in their energy transition and
• 2:17
  distribution and storage segments. We'll get into those.
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  But there was also a very specific strategic move. They realized S49.0 million
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  dollars in divestment gains.
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  Divestment gains. So that's corporate speak for we sold something. Correct.
• 2:33
  They sold Philippine Coastal and a partial stake in their Ventura bus business.
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  This is a key part of their strategy, but it definitely boosted that top line
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  number. So some of that growth is lumpy.
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  It's not going to happen every year. Exactly. Not recurring.
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  Okay. So they made more money by, let's say, selling some furniture.
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  What does that mean for the cash in my pocket as an investor?
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  Did the distribution per unit, the DPU, go up 25% too?
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  Not exactly. And this is where stability is really the name of the game for them. Uh-huh.
• 3:02
  The DPU remains stable at 3.94 Singapore cents for the full year.
• 3:07
  So that's 1.97 cents for the second half of 2025.
• 3:11
  I feel like some listeners might be a little annoyed by that.
• 3:13
  You made 25% more, but I got paid the exact same.
• 3:16
  They might be, but you have to look at the total unholder return,
• 3:20
  which combines the share price and the dividends. What was that?
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  That was 17.2% for the year.
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  17.2%. In a year where global growth was a bit wobbly.
• 3:30
  Exactly. I think most investors would take a 17% total return and run with it.
• 3:34
  It handily beat most general market indices.
• 3:38
  All right, fair enough. I'll take 17%. Let's peel back the onion then.
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  Where is this recurring money coming from? The biggest winner seems to be the
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  energy transition segment. That's right. This is their growth engine.
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  Distributable income for this segment jumped 27.8% to about $187 million.
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  And the star of the show here seems to be City Energy. That's the town gas provider in Singapore.
• 4:02
  Now, I always thought town gas was a dying trade with everyone moving to induction
• 4:05
  stoves. You'd think so, but the report mentions something specific driving growth.
• 4:10
  Gas water heaters? What heaters? It's a classic sticky utility.
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  They increase their market share in residential gas water heaters,
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  and once a building is piped for gas, that customer is locked in.
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  You don't just rip out your heating system on a whim.
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  It's the definition of boring but profitable.
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  Then you have KMC Keppel, Merillamo Kogen, the power plant.
• 4:32
  The report uses the phrase 100% contractual availability.
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  Which is incredibly hard to achieve. It means the plant was available to generate
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  power every single minute it was supposed to.
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  So it's like a car that never breaks down. It's a car that never breaks down
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  and just got a brand new, more efficient engine.
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  They completed a second turbine upgrade in June.
• 4:50
  Ah, okay. Better efficiency. Better bottom line.
• 4:54
  Precisely. However, we have to talk about the wind farms. If you read the financial
• 4:58
  statements closely, you'll see a bit of a red flag on the Borkum Riffgrund 2 wind farm, BKR2.
• 5:04
  I did see that. An accounting impairment. That sounds scary.
• 5:08
  Did a turbine fall into the ocean? No, and this is a crucial distinction.
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  The wind farm is physically fine. An impairment is an accounting adjustment.
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  It's non-cash. So what does it mean? It reflects a change in the book value
• 5:19
  of the asset, maybe because long-term power price forecasts were adjusted down a bit.
• 5:23
  It makes the profit on paper look lower, but it does not affect the actual cash flow.
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  So the cash is still flowing, even if the accountants had to change a number
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  on a spreadsheet. Exactly.
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  The turbines are spinning. The cash is hitting the bank account.
• 5:35
  Got it. Okay. So energy transition is solid.
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  Let's move to the second big bucket. Distribution and storage,
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  up 17.3%. This is the workhorse segment.
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  The main driver here is Ixum, an Australian chemical business.
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  And again, look at who they sell to. Mining, dairy, water treatment.
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  It really shows how diversified this is. If people are drinking milk and digging
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  for copper, KIT gets paid.
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  It's a bet on the real physical economy.
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  And then there's Ventura, the bus operator in Australia. they also hit some
• 6:07
  impressive metrics, 100% service reliability.
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  Which is a miracle for public transport. But this is where it gets interesting
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  for me. You said they sold Philippine Coastal. Why sell winter?
• 6:17
  This brings us to their core philosophy, capital recycling.
• 6:20
  Capital recycling. They don't just buy assets and sit on them.
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  They realized they could sell that in part of Ventura to unlock about $300 million.
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  So they cashed out while the price was high. Right. They used that cash to pay
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  down debt, and then they have dry powder to buy new, higher-growth assets.
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  Don't let money sit idle. Which is a perfect segue.
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  But before the new stuff, we have to look at the one segment that didn't have
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  a party in 2025, environmental services.
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  Yes, the down sector. Distributable income here dropped 36.7%.
• 6:51
  Ouch. That's a massive drop. What went wrong?
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  It wasn't really that operations failed. The main culprit was the Sunoco Waste to Energy Plant.
• 6:59
  The concession was extended, which sounds good. Usually keeping your contract is good. Usually.
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  But when you extend these concessions, the terms often change.
• 7:08
  The new terms came with lower payments. I see. So the asset is still running,
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  but the government is paying them less for it. The margins got squeezed.
• 7:16
  Correct. But, and this is a big but, there is a hidden gem in this segment that
• 7:20
  investors need to watch.
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  This would be the Korean business, EMK. Yes, EcoManagement Korea.
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  Cash flow was a bit soft in 2025 due to landfill pricing, but there is a massive
• 7:30
  catalyst coming. I read this and I circled it three times.
• 7:33
  January 1st, 2026. The magic date.
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  On January 1st, 2026, a ban on the direct landfilling of municipal solid waste
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  begins in the Seoul metropolitan area.
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  So you can't just dump trash in a hole in the ground anymore.
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  Not in Seoul. You have to burn it. And who owns the incinerators?
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  EMK. That is a regulatory tailwind if I've ever heard one.
• 7:55
  Yeah. The government is forcing customers to their door. Exactly.
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  It's a classic turnaround story driven by regulation.
• 8:01
  Okay, so that's the existing portfolio. But remember that S-300 million dollars
• 8:05
  they raised? They spent some of it, and this part surprised me.
• 8:08
  They bought internet cables. This is the major pivot.
• 8:12
  In November 2025, they entered a new segment, Digital Infrastructure,
• 8:16
  by acquiring 46.7% of Global Marine Group, or GMG.
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  And what does GMG do? They are the people who fix the internet pipes under the ocean.
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  They maintain subsea cables. In
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  fact, they handle about 31% of the global maintained subsea cable length.
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  31%. That's nearly a third of the world. It is. We think of the cloud as wireless,
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  but it's not. It's a cable on the ocean floor. And GMG are the ones who fix it.
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  So they traded an oil storage tank for the backbone of the internet.
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  That's one way to look at it. It's too early to see a big financial impact in
• 8:46
  2025, but it sets the stage for 2026.
• 8:49
  It definitely sounds more exciting.
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  But let's bring it back to the boring stuff for a second. The debt.
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  Infrastructure runs on debt. Should we be worried? It looks reasonable.
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  Net gearing is at 38.7%. Is that high?
• 9:02
  For an infrastructure trust with stable cash flows, it's pretty standard.
• 9:06
  Anything under 40% is seen as the sweet spot.
• 9:09
  More importantly, their interest coverage ratio is a healthy 7.6 times.
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  And they're well protected from rate hikes. Over 70% of their debt is fixed
• 9:17
  or hedged. That's good to hear.
• 9:19
  But the biggest relief for investors is the refinancing news for Ixum.
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  This was the big one, right? Yes.
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  $663 million. A massive chunk of debt.
• 9:28
  They've secured a commitment to refinance it, pushing the maturity all the way out to 2029.
• 9:33
  That's huge. It basically removes any immediate bankruptcy risk for that asset.
• 9:38
  Exactly. It buys them years of runway.
• 9:40
  So solid year behind us, stable dividend, new digital asset.
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  What is the outlook for 2026?
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  What are the risks? The macro view is, you know, mixed. Resilient growth,
• 9:50
  but risks are tilted to the downside.
• 9:53
  However, management addressed a specific concern, U.S. tariffs.
• 9:56
  Oh, that's been on everyone's mind. Did they think it would hurt them?
• 9:59
  Explicitly, no. They stated they see limited direct impact. And why is that?
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  Because of the nature of their assets. They're mostly domestic,
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  Singapore town gas, Australian buses.
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  They aren't exporting widgets to America. That makes sense. Local services for
• 10:14
  local people. So what are the opportunities?
• 10:16
  The bull case for 2026.
• 10:19
  We've touched on them. But to summarize, first, the EMK landfill ban in Korea
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  kicks in. That should drive volume immediately.
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  Second, City Energy is expecting more residential customers.
• 10:30
  And the new kid on the block, GMG. Right.
• 10:32
  They're looking at fleet expansion for their cable ships. The demand for data isn't going away.
• 10:38
  And the overarching strategy is still invest-to-vest reinvest.
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  That's the key takeaway.
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  They are active traders of infrastructure, not passive holders.
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  So if we summarize this deep dive, Kit delivered a 24% jump in distributable
• 10:51
  income, kept the dividends stable, hedged their debt, and swapped a legacy asset
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  for a future-facing digital one.
• 11:00
  It was a textbook year for active infrastructure management.
• 11:03
  The only sore spot was environmental services, but that Korea thesis gives us
• 11:07
  reason to believe it will turn around.
• 11:09
  It really challenges the idea that infrastructure just means concrete and steel.
• 11:12
  Which leads me to a final thought for our listeners.
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  We often talk about tech stocks and utility stocks as opposites.
• 11:19
  One is exciting and risky, the other boring and safe. Right.
• 11:23
  Never the twain shall meet. But think about artificial intelligence.
• 11:27
  AI requires massive amounts of computing power, but that data has to move between continents.
• 11:33
  If AI drives a huge surge in data traffic, who benefits? The company fixing
• 11:38
  the pipes under the ocean. TMG.
• 11:39
  Exactly. With Kitt's new investment, you have to ask yourself,
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  is this infrastructure trust actually a hidden pick and shovel play for the AI revolution?
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  It might be that the most boring stock in your portfolio is actually your best
• 11:51
  tech bet for the next five years. That is something to chew on.
• 11:55
  From boring gas pipes to the backbone of AI. That's a wrap for our deep dive into KT's 2025 results.
• 12:02
  We hope this cleared up the numbers for you. Thanks for listening.
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  This content is intended to serve strictly and only as an informational,
• 12:08
  independent, objective summary of recent events and should in no way be interpreted,
• 12:12
  construed, or relied upon by any party as inside information or financial advice.