Background: Keppel T&T (KPTT) began as an offshoot of the Straits Steamship Company (now Keppel Land) to focus on transport, logistics and telecommunications. For telecommunications, its main success has been the establishment of M1, in which it holds a 19.7% stake, while other telecoms have been progressively rationalised. Currently the company’s core focus is its logistics and data centre businesses.
Recent development: In December 2009, the company appointed BG (NS) Pang Hee Hon as its new CEO. It has continued to invest in its logistics and data centre businesses, which have shown excellent earnings traction. Its recent 2Q reporting showed a 19% rise in net earnings.
Key ratios…
Price-to-earnings: 12.3x
Price-to-NTA: 2.2x
Dividend per share / yield: $0.035 / 2.5%
Net cash/(debt) per share: (S$0.37)
Net debt as % of market cap: 26%
Share price S$1.395
Issued shares (m) 552.7
Market cap (S$m) 771.1
Free float (%) 19.1
Recent fundraising activities Nil
Financial YE 31 December
Major shareholders Keppel Corp – 80.1%
YTD change -1.1%
52-wk price range S$1.19-1.56
Our view
Burgeoning earnings. Though M1 continues to be the main profit contributor, representing 65% of pretax earnings, this proportion has been on the downtrend not just because of the telco’s maturing contributions, but also due to higher growth in KPTT’s logistics and data centre businesses. Operating profit has been increasing at a steady pace over the past few quarters.
Opportunities abound. KPTT has the opportunity to substantially grow its logistics and data centre businesses, not just in Singapore, but also from operations it has set up in recent times in locales such as China and Vietnam. It is also poised to leverage off Keppel’s involvement in the Tianjin Eco-City project to take advantage of its rapid growth.
Potential divestment. The market has long speculated that KPTT could be due for a restructuring. A possible scenario is for the company to finally divest its 19.7% stake in M1, which is worth $472.3m at the current market price, or $527.6m based on our target price for M1. KPTT can then plough the cash back into investing into its core business, with cash left over to pay a special dividend to shareholders.
Valuations compelling. KPTT’s forward PER (based on consensus) stands at just 10.3x. Considering that M1 currently trades at 14.2x, its core logistics and data centre businesses are trading at just 7.8x. Peers like CWT are trading in the mid-teens. Our back of the envelope SOTP calculations indicate that KPTT could be worth $1.80/share, 29% higher than the current level.
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