CitySpring – DBSV

Another safe quarter

At a Glance

• 1Q11 DPU of 1.05Scts as expected; we maintain our DPU estimate of total 4.2Scts for FY11

• Outage at Basslink hit 1Q11 revenues.

• Cash earnings of S$18m was slightly above our estimates due to strong cash flows from CityGas

• Yield of close to 7% looks secure, maintain BUY with TP of S$0.67

Comment on Results

Outage at Basslink, other operations stable. Group revenue was up 25% y-o-y to S$104m in 1Q11, on the back of higher tariffs at CityGas, but slipped 12% q-o-q owing to an outage at Basslink, which led to lower facility fees. The facility fees can be recovered, however, if Basslink maintains an overall availability of 97% for the full year of CY2010. Basslink revenues were also affected by negative CRSM (risk sharing mechanism) payments to Hydro

Tasmania. As a result, cash earnings declined about 20% q-o-q to S$18m, but this was still slightly above our expectations and represented a sizeable improvement over the levels seen in the first 3 quarters of FY10, owing to the mismatch between CityGas tariffs and fuel oil prices.

Payout ratio leaves room for comfort. The Group paid out 1.05Scts for the quarter, in line with the guidance of 4.2Scts for FY11. Net cash distributed amounted to a conservative 57% of net cash generated in 1Q11, and hence we remain comfortable with our DPU estimates for FY11.

Outlook and Recommendation

Maintain BUY. CitySpring remains as a relatively safe yield instrument. We maintain our BUY call at an unchanged TP of S$0.67. With a gross cash of close to S$100m, risks like higher fuel prices at CityGas and ongoing discussions with Hydro Tasmania regarding a A$6.9m payment are unlikely to affect payouts. M&A remains a possible catalyst given the improved balance sheet following to the rights issue last year.