We recently researched Dalrymple Bay Infrastructure (ASX:DBI) in The Dynamic Investor. The defensive (and growing) nature of distributions, coupled with potential for inflationary pressures to provide upside to revenue growth, were key factors supporting our positive view.

With the shares trending nicely since our recent report, we assess whether current levels still present an attractive entry opportunity.

About Dalrymple Bay Infrastructure

Dalrymple Bay Infrastructure holds the 99-year lease (comprising a 50-year lease with a 49-year option) to the 85Mtpa Dalrymple Bay Coal Terminal (DBCT). DBCT is an open access export terminal located in central Queensland (Port of Hay Point, Mackay) servicing customers in the Goonyella coal system. Terms and conditions of access to DBCT are regulated by the Queensland Coal Authority (QCA).

Key Fundamental Drivers

Highly Predictable Revenue Model

DBI’s revenue stream is underpinned by an annual Terminal Infrastructure Charge (TIC) imposed on users. The TIC for Dalrymple Bay is directly driven by inflation and Australian Government bond yields through a three-part, CPI-indexed structure (base + non-expansionary capital expenditure + regulator levy). The base charge increases annually with CPI, while capital expenditure (CAPEX) returns are set at the 10-year government bond rate plus a margin.

Earnings growth (i.e. EBITDA) is driven by CPI-linked base charges and incremental earnings on commissioned NECAP projects. DBI benefits from attractive risk mitigants. These include: i) 100% take-or-pay, ii) Revenue socialisation, iii) Force majeure protection and iv) Direct pass-through of operating expenses.

Potential for Distribution Growth

Distribution Per Share (DPS) growth remains targeted at “3-7% per annum for the foreseeable future”. There is potential for DPS to grow faster than the Company guidance for +3-7% growth, given the anticipated uplift in TIC revenue in TIC-year 2026/27. The latter is driven by: i) 100% take-or-pay fully contracted through to at least 2028, and ii) The predictable pricing mechanisms applied to both the base Capital Expenditure (CAPEX) and Non-Expansion Capital Expenditure Program (NECAP), iii) Lower interest costs and iv) The greater utilisation of debt to fund future NECAP programs.

Rising Bond Yields Support Prospect for Higher TIC Charges

Rising bond yields generally increase the NECAP component of the TIC. Notably, the average 10-year Australian Government bond yields heading into June will impact the annual TIC revenue adjustment applicable from 1 July 2026. Australian Government bond yields are expected to remain elevated or trend higher over the next few months, driven by a hawkish shift in the RBA’s policy outlook and persistent inflationary pressures. Following a sharp rise in early 2026, major banks and market analysts are pricing in further interest rate hikes, which generally pressures bond yields upward.

8X Project the Next Growth Driver

The 8X project is part of a broader strategy by DBI to expand the DBCT’s metallurgical coal export capacity through NECAP program. Under the 8X project, the terminal’s capacity will increase from 84.2Mtpa to approximately 99.1Mtpa, with potential for further, smaller, in-footprint increases.

DBI has experienced continued strong demand for metallurgical coal exports despite restricted access renewals. Currently, there is approximately 29Mtpa of annualised demand in the access queue (including 8X access seekers). However, this has yet to transform into commitment (i.e. long-term take-or-pay contracts with users). The Company noted at the FY25 results release that discussions with customers on the status of mine developments and timing of a commitment to 8X are ongoing. One of the reasons for the delay may be that further commitments to mine expansions are needed.

There is currently a significant difference in the cost structure between the competing North Queensland Export Terminal (NQXT) and DBCT. Notably, the NQXT generally offers a lower-cost alternative for handling, especially when considering the high incremental capital costs of expansion at DBCT. A potential catalyst for the shares is medium-term repricing to capture more of the difference between NQXT and DBCT.

Would the current US-Iran conflict impact operations?

The current Middle East conflict is unlikely to directly impact DBCT’s physical operations, as DBCT primarily services Asian metallurgical coal markets, making it geographically and operationally insulated from direct conflict disruptions in the Strait of Hormuz. DBCT’s operations are more closely linked to demand from steelmakers in India, Japan, and China rather than Middle Eastern geo-political instability.

Having said that, there is an indirect risk via energy cost inflation, or broader supply chain issues that may arise from a prolonged conflict.

Fundamental View

Notwithstanding the appreciation in the shares since our report, DBI is still offering an attractive 1-year forward yield of slightly <6%. Distribution appeal is also likely to improve as franking increases. Further, investment risk from a value-dilutive capital raising and/or Merger & Acquisitions has been reduced to due to the current focus on the 8X project and commitment to increase the distribution payout ratio.

Charting View

DBI has been trending steadily for the past few years. The recent dip in the share price has seen it come back to the recent uptrend line. With good support emerging here, DBI is likely to head higher again. DBI is therefore a buy at current levels.

 

Michael Gable is managing director of Fairmont Equities.

 

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