The business in K Green is actually very straight forward...it is a business trust that at the moment, focuses on "green infrastructure assets" in Singapore, namely, the (i) Senoko waste to energy plant, (ii) Ulu Pandan NEWater Plant and (iii) Tuas waste to energy plant. K Green also has the right of first refusal from Keppel and the management is also actively looking for opportunities aboard albeit no announcement of M&A of any sort yet. It is also no secret that Keppel probably spin it off into a Trust those projects that are of lower yield....but we should not discuss it further in this post....focus will be on the 3 main projects it is running for government.
Oh ya, talking about government makes things very interesting indeed, it's major and only customer is actually the Singapore government. The default risk is minimal unless somehow, Singapore collapses or K Green team unable to deliver proper maintenance or operation support which leads to a fundamental breach of contract. Unless that happens, it is safe to assume that the money made from government will keep recurring. Do note that based on the current business, the trust is actually self liquidating. The higher paid out in the form of dividends which is significantly more than the earnings thus cause the net asset to decline gradually over time.
Next, with regards to the balance sheet of K Green, the net assets is really a good proxy to it's fair value. For example, cash, trade receivables, trade payables, provisions will approximate their fair value for obvious reasons. Only tricky part will be the service concession receivables and plant and equipment (we can ignore the Plant and equipment as it is immaterial). Based on IFRIC 12 accounting for service concessionary agreement, the total receivables from the 3 projects would have been factored and discounted to the present value during 2010. Hence I put it across boldly that what you see is what you will get from the published K Green financial.
Attached below an illustration how I worked out (that was last year hence I only have the half year June 2011). Yields based on it's earnings effectively around 2.71%. But if base on the net assets acquired at that point, it is a 17% discount to my perceived intrinsic value of K Green hence I went ahead to buy at 0.935 and was confident that I have found a very good deal.
Did I also forget to mention that K Green currently does not has any loans outstanding and if it were to take on new projects and leverage up on the low interest rate environment, the yield to shareholders will actually increase.
Have found that the market price can be extremely volatile. It's first day listing price in June 2010 was S$1.05. From there, it had been a downward spiral until the recent market rally in Jan 2012. I would say just ignore the background noise and let the market go on it's daily up and down see saw. If you have put $10K with K Green instead of leaving it in the bank in savings or fixed deposits (@1.87% interest), you would be rewarded and definitely better off with the total returns accumulated throughout the remaining income generating lifespan of the 3 projects.. Along the way, we can also wait for potential growth in acquisition of new infrastructure assets from leveraging on bank loans. Hence, holding on to K Green definitely has lots of good upside at the moment. May not be as exciting as holding on to blue chip stocks but the returns are decent.
P.S: The largest shareholder in K Green is still Temasek Holding at 49% of the issued units.
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