Resets boost 1H09 revenue. SP AusNet (SPN) posted a 8.9% YoYincrease in 1H09 revenue to A$635.5m, boosted by recent positive regulatoryprice resets, higher usage due to cooler winter weather, and higher volumefrom new customer connections. Profit after tax, however, fell 22.9% YoYto A$92.2m because of a non-cash impairment charge of A$43.3m. Thecharge was taken on SPN's electricity meters in line with a revised costrecovery model on the 'smart meter' roll-out. SPN will pay out about 5.9 Acents for 1H09 and said it is on track to pay out 11.85 A cents for the fullyear, as guided. This roughly translates to a 10.5% yield.

Distributions from operating cash flows. The ongoing sell down of yieldinstruments in both Singapore and Australia reflects, in our opinion, investorfears that the dividends paid out by such instruments are unsustainable.Some of SPN's infrastructure peers have come under pressure in recentmonths because of aggressive distribution payout policies that rely onleverage (borrowing future growth to pay investors today). SPN, meanwhile,uses its operating cash flows to service its distribution to unitholders (seeExhibit 2). In FY08, SPN paid out 39% of its operating cash flow asdistributions. The remaining funds were used to make interest paymentsand to fund capex. We note that SPN has newly introduced a distributionreinvestment plan. Depending on the take-up, SPN will be able to utilizemore of its operating cash flows to fund its capex program.

No near-term debt expiry. SPN's infrastructure peers with near-termrefinancing needs have also seen their share prices fall. Refinancing existingdebt in the current market has become more expensive, and in selectcases, nearly impossible. We note that SPN stands out in the sectorbecause of (1) its 51% investor, Singapore Power (100% owned by TemasekHoldings) and; (2) SPN also has no refinancing needs in the near-term - itwill next see debt expiries in Sept 2010. In the meantime, SPN still plansto spend A$2.7b in capex over the next five years using a combination ofdebt (60%) and internally generated funds (40%).

Relative out-performer. SPN has seen a 23% decline in its share pricesince June, in line with the 26% devaluation in the AUD/SGD. In contrast,the STI has fallen 45% over the same period. About 90% of SPN's revenueis regulated, and is locked in until 2011. We do not have a rating onSPN.