A stronger showing than expected:  Macquarie International Infrastructure Fund (MIIF)'s adjusted net income of S$60.2 mil has already surpassed our FY2012 estimate of S$52.3mil. The positive earnings surprises largely came from Hua Nan Expressway (HNE) and Taiwan Broadband Communications (TBC). We were more conservative on the growth rates in traffc for passenger vehicles, medium bus/trucks and large bus/trucks, and actual traffc came in about 6'10% higher than our growth estimate across these
segments. For TBC, its distributable income of NT$42.9mil exceeded our estimate of NT$41.2mil. While growth in the subscriber numbers for TBC runs largely parallel to our expectations, we were more
aggressive on the cost front.

Impact of 20% toll reduction on HNE Phase 1 will be fully borne out  in FY2013:  Despite witnessing a double'digit growth of 17.9% in overall traffc volumes for 9MFY2012, its distributable income
plummeted by 22.7% on the back of the tolling revisions. Notably, this was partially cushioned by the impact of the opening of Guanghe Expressway, which is a complementary road to HNE, as well as the standardisation of toll rates in Guangdong Province. We believe these will continue to serve as positive contributing factors supporting our growth forecast of 12.3% in traffc volumes in FY2013. However, as FY2013 re'ects the full impact of the toll reduction, we expect distributable income from HNE to decline by
16.2% in the following financial year.

A real head'turner:  As we roll over our estimates and lower our expenses forecast for FY2013, we raise our fair value to S$0.680. This means that MIIF provides capital appreciation potential of around 19.3%, not to mention its superior 10% dividend yield. Furthermore, we see upside risks pending the outcome of MIIF's strategic review.

Source: AmFraser