KEPPEL TELE & TRAN
KEPPEL T&T
K11.SI
Keppel T&T - Blame the associates; 2Q will be better
- 1Q16 net profit of $13.3m (-16% yoy) came in below expectation at 18% of our FY16 forecast, mainly due to lower associates contributions and higher taxes.
- Data centre (DC) operating profit surged 62% yoy, logistics plunged 40% yoy.
- We cut our FY16-18 EPS by 1-5%, mainly on expectations of lower associates contributions from M1 and logistics.
- Maintain Add, with a lower SOP-based target price of S$1.72 after adjusting for the market values of its stakes in M1 and KDCREIT.
1Q16 dragged down by associates
- KPTT’s 1Q16 net profit fell 16% yoy to S$13.3m due to lower associates contributions across all segments (logistics contribution turned negative) and higher taxes.
- Operating profit fared better, rising 6% yoy with the opening of Almere Data Centre 2 in Oct 2015, but offset by lower volumes at its China river ports and slowdown in ASEAN logistics.
- Overall, ASEAN revenue fell 31% yoy and China revenue fell 10% yoy in 1Q16.
Logistics disappointed but likely to be better in 2Q16
- Logistics revenue slipped 8% yoy due to lower volumes at its China river ports and ASEAN, partially offset by contributions from Tampines Logistics Park.
- Operating profit fell a larger 40% as margins were squeezed by startup costs in Tianjin and Lu’an, which will be operational by 2Q16 and 3Q16, respectively.
- Both received healthy enquiries for cold chain facilities. KPTT’s river ports have turned around in the past few weeks, which should translate to better qoq performance.
- The focus remains on execution in China.
Data centres lifted by Almere 2; T27 will be fully leased in 1Q17
- DC revenue rose 35% yoy and operating profit surged 62% yoy, driven by contributions from Almere 2. KPTT recently won two contracts worth S$84.5m at T27, which brings its commitment to 100% and takes it closer to being injected into KDCREIT.
- The first lease begins this year, and the other in Mar 2017. Next to T27, construction of T20 has begun.
- Management expects cost savings from centralising resources (e.g. power, cooling, command centre) across T20, T25 and T27 as they are located in the same cluster.
Sale of M1 stake makes sense – to fund new DC investments
- M1 has made steady associates contributions to KPTT (c.30% of PBT in FY15), but this could come under pressure with the potential entry of a fourth telco.
- We cut our FY16-18 EPS by 1-5% mainly on lower M1 contributions. We think the sale of its M1 stake makes sense – to fund its investments in DCs, for which demand is still strong.
- The carrying value of its M1 stake is S$181m (current market value: $433m). KPTT is evaluating both brownfield and greenfield DC assets in Indonesia, Thailand, China, India and Europe.
Maintain Add
- Our Add call is underpinned by:
- near-term improvement in logistics as its facilities in Tianjin and Lu’an start contributing to revenue,
- ramp up in occupancy at T27 with the new S$84.5m contract, and
- asset recycling from the sale of T27 to KDCREIT.
- Longer term, we think the sale of its M1 stake makes sense as it seeks to grow its DC portfolio more aggressively.
- Our SOP-based target price falls to S$1.72 after adjusting for the market value of KPTT’s 19.1% stake in M1 and 30.1% stake in KDCREIT.
Jessalynn CHEN
CIMB Securities
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http://research.itradecimb.com/
2016-04-14
CIMB Securities
SGX Stock
Analyst Report
1.72
Down
1.74
