Results in line. CitySpring Infrastructure Trust (CitySpring) posted S$82.8m in 1Q revenue, down 16.6% YoY and down 15% QoQ. Cash earnings also fell 22% YoY and 36% QoQ to S$13.9m. Results were in line with expectations, barring a larger than expected tax credit for the quarter. CitySpring will distribute 1.75 S cents per unit to unitholders for 1Q10, flat QoQ and YoY. The trust maintains its guidance of a FY10 payout of 7 S cents or a yield of 9.1% on the current price.

Business as usual at City Gas. The top-line shortfall was primarily due to lower tariffs charged by City Gas. The larger decline in cash earnings reflects the short-term volatility in the City Gas business as there is a time lag in adjusting tariffs, which are reviewed every three months, to reflect actual fuel costs. Town gas volumes were actually flat YoY according to the manager while overall volumes rose slightly. City Gas has since raised its tariff by 7.5% effective 1 Aug. Over time, City Gas should be net neutral to fluctuations in fuel costs.

Basslink's telecoms network is live. The transition between an old and new revenue model for Basslink's telecoms network also impacted 1Q10 earnings. Recall the previous telecoms agreement was terminated in Apr. This enabled the commercialization of Basslink's fiber optic cables without the constraint of the prior revenue-sharing agreement. The network is now live and has been carrying customer traffic since 3 Jul. We expect telecoms revenue to contribute positively to 2Q10 earnings.

Price hits viability point. We understand asset valuations are still not compelling but the manager does see opportunity for some downward pressure as asset owners potentially run into refinancing difficulties. We have always believed that the S$370m loan at the trust level has been the biggest roadblock to CitySpring's future growth. Our concern was overhang from a significantly dilutive equity issue. The trust's unit price has increased 63% YTD. Exhibit 3 shows that an equity issue is a lot less prohibitive at the current price than it was eight months ago. We estimate that a cash call at this price level would be DPU neutral. As such, we believe a growth or acquisition scenario finally looks more realistic on a 12 to 18 months time horizon. We have adjusted our cost of capital assumptions for CitySpring, and revise our fair value estimate to S$0.84 (versus S$0.57 previously). Upgrade to BUY (total return 18.2%).