Jasmine Broadband Internet Infrastructure Fund

Jasmine Broadband Internet Infrastructure Fund 

 

Investment thesis

Amid a low-interest-rate environment and a volatile equity market, the search for a high-yield investment could prove a lucrative alternative to bonds and equity in general. JASIF’s high yield of 8.5% for 2015E is among the highest in the market, with two-year-average (2016-17) growth in the fund available for distribution to shareholders and total distribution to shareholders of 17.7% and 12.6% p.a., respectively, from additional asset transfers. Long-term contracts on its Main Lease Agreement (about 11 years) and Second Lease Agreement (renewable every three years) should provide a relatively secure income stream for the fund and dividends for investors. We initiate coverage on JASIF with a BUY rating and a YE15 target price of Bt11.8.

Steady growth in rental income with a CAGR of 5.2%, FY15-25

We project steady growth in rental income, CAGR—5.2% for FY15-25. We estimate the following rental income—Bt4.4bn in FY15 (assuming revenue recognition in Feb 2015), Bt5.5bn in FY16 (up 25.9%) and Bt5.9bn in FY17 (up 7.5%). The high growth in the first couple of years will be contributed from additional assets transferred during 2015-16. Increased revenue after 2017 is based on rental rate adjustments agreed upon between JASIF and TTTBB, which will be attuned to account for the annual inflation rate (assuming 0.5% for 2015E and 2.6% afterwards). 

Attractive yield vs. comparable funds, stock dividends and bonds

Our estimated annualized yields for JASIF of 8.5% for FY15 (annualized yield of 9.6% if JASIF’s revenue recognition were to be full year), and 10.0% for FY16, indicate that it is more generous than the yields of many property funds and comparable infrastructure funds. Based on our dividend payout ratio assumption of 99%, we forecast that the distribution (dividend) plus the capital reduction to unit holders will rise from Bt4.3bn for FY15 to Bt5.1bn for FY16 and Bt5.5bn for FY17, a CAGR of 4.3%, FY15-25. 

Upside potentials

1) Additional assets transferred from TTTBB after the 980,000 core km of cable are laid, 2) higher rental income from the Second Lease Agreement and, 3) higher inflation rate than was assumed. 

Downside risks

1) Competition from existing (TOT, TRUE, AIS) and new players (INET, CTH), 2) uncertainties over the renegotiated rental rate after current contracts end, 3) contingent liabilities for TTTBB that may compromise its financial health and its ability to pay rentals to JASIF, 4) a rising bond yield causes the required yield to rise (causing the unit price to fall) and, 5) a persistently lower inflation rate than assumed.