MIIF reports its 2Q result on Thursday 13 August. Focus will likely be on the asset review, not specifically the asset performance. Management will also clarify the extent of the dividend cut, which we expect to be S$0.02 in 1H.

In the past six months, MIIF’s manager, Macquarie Bank, has been reviewing its portfolio of managed funds. MCG has been the subject of a takeover bid (completed on 28 June) by CPPIB and two of Macquarie’s funds proposing internalisation. For MIIF, internalisation is unattractive at the current share price (because the cost of management is higher than fees paid), thus we anticipate MIIF will seek an orderly asset realisation instead. Clarity on how management is progressing will be the major driver.

At this stage, we believe the improved credit markets do help, but MIIF is still challenged by the fact that it is selling minority interests. MIIF is currently trading at a 54% discount to NAV, which is too large in our view relative to the implied discount by MAp (40%) and MIG (45%) share prices and the recent takeover of MCG (estimated 42% discount to NAV). Asset realisation, given MIIF’s recent cut in NAV, should generate at least S$0.54 and our valuation is higher at S$0.68, as the Asian assets like Changshu Port and Hua Nan Expressway are not heavily geared.

Operationally, we believe the positives should come from Changshu port with any significant rebound in volumes, TBC as it accelerates the rollout of digital television, and Arqiva which we believe is ahead of budget as integration is occurring faster than scheduled. Leisureworld’s quarterly performance was flat, which was a little disappointing to us. Hua Nan Expressway will likely continue to find growth difficult as truck traffic is negatively affected by the economy, and MEIF, while lacking transparency in our view, is suffering from the European downswing on over-leveraged balance sheets.

12-month price target: S$0.59 based on a DCF methodology. We maintain our Outperform recommendation. The upside potential is based on asset realisation. However, even if it takes longer than expected, MIIF has a running yield of ~10%, which we think is supportable despite lower dividend income from MEIF and Arqiva.