Keppel T & T - CIMB Research 2016-01-20: Lifted by revaluation gains

Keppel T&T - CIMB Research 2016-01-20: Lifted by revaluation gains KEPPEL TELE & TRAN KEPPEL T&T K11.SI 

Keppel T&T - Lifted by revaluation gains 

  • FY15 net profit came in at S$91.5m, which was above expectations at 145% of our forecast mainly due to revaluation gain on its data centres. 
  • Logistics remained soft due to a slow ASEAN and high start-up costs. We think this should improve with the opening of its new projects in Tianjin and Lu’an this year. 
  • Data centre remains the key engine and we see opportunities for new asset acquisitions. 
  • Maintain Add but with a lower SOP-based target price of S$1.74 as we adjust for the lower market value of KPTT’s associates stakes, including M1 and KDCREIT. 

■ Net profit boosted by revaluation gains on DC assets 

  • FY15 net profit of S$91.5m exceeded expectations on the back of a S$32.1m revaluation gain on its data centre, partially offset by a S$9.0m mark-to-market loss on its legacy equity investment and S$1.5m write-off in goodwill associated with its investment in ITL. Associates contributions from KDCREIT also included revaluation gains on its data centre (DC) properties. Excluding these amounts net of tax, we estimate that core net profit would have been in line with our estimate. 

■ Logistics in ASEAN remains slow; new China facilities to open 

  • Logistics revenue rose 4.5% yoy in FY15, with the opening of Tampines Logistics Hub, partially offset by lower ASEAN revenue. However, core operating profit fell 20% yoy and core net profit fell 61% yoy due to ongoing start-up costs for new projects in China. 
  • Looking ahead, guidance is for ASEAN to remain slow and throughput at its China ports to see downward pressure, but we expect the opening of the new facilities at Tianjin and Lu’an this year to provide some respite for margins as they start contributing to revenue. 

■ Data centre segment remains the star 

  • Data centre (DC) revenue fell 40% yoy due to the divestment of assets to KDCREIT in FY14, but net profit rose 92% yoy due to: 
    1. a S$32.1m revaluation gain, and 
    2. associates contributions from KDCREIT, including a revaluation gain on its assets. 
  • T27 remains on track to be divested to KDCREIT in 2016, while construction of T20 will commence soon. 
  • KPTT continues to see strong pipeline of new customers and recently entered into a partnership with Epsilon to provide global connectivity to its DC clients. 

■ Eight European DCs up for sale…could KPTT be a buyer? 

  • The recent merger of Equinix and Telecity leaves eight European DCs (five in London, two in Amsterdam, one in Frankfurt) on the block for sale, due to anti-competition laws. The assets have to be sold by 1H16, and we think they could potentially be attractive to KPTT/KDCREIT, to expand their presence in Europe from the current five DCs. 
  • Coincidentally, Epsilon provides network access to six of the DCs up for sale, and this would allow for seamless connectivity with KPTT’s assets. 

■ Maintain Add 

  • We maintain our Add call on KPTT, with a lower SOP-based target price of S$1.74 after adjusting for the lower market value of its associates stakes, including M1 and KDCREIT. 
  • We expect re-rating catalysts to come from capital recycling and new asset acquisitions.

Jessalynn CHEN CIMB Securities | http://research.itradecimb.com/ 2016-01-20
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 1.74 Down 1.91