HOLD S$1.21 STI : 2,724.69
(Downgrade from BUY)
Price Target : 12-Month S$ 1.35 (Prev S$ 1.65)
Reason for Report : Change in recommendation and TP
Potential Catalyst: Further progress in data-centre business
DBSV vs Consensus: FY11F/12F earnings 15%/16% below consensus
• 3Q11F pre-exceptional earnings were below expectations due to logistics weakness.
• Data-centre business is fairly resilient but logistics segment may feel the impact of export slowdown in China. Lowered FY11F/12F EPS by 13%/15%.
• Downgrade to HOLD at lower TP of S$1.35. Cheap valuation and 3% yield to protect downside.
9M11F core earnings comprise 60% of our previous FY11F estimates. Excluding S$22.3m exceptional gain, net profit of S$13.3m (-13% YoY, -25% QoQ) came below our estimate of S$17-18m. Logistics segment was the main culprit as (i) a key warehouse in Singapore was closed for capacity doubling, and (ii) an associated company was disposed off in China resulting in exceptional gains.
4Q11F likely to improve, but FY11F/12F may grow slower than earlier expected. We estimate 4Q11F earnings of S$18m, up 35% QoQ. Post redevelopment, a key Singapore warehouse is likely to be leased out in 4Q11F. KPTT increased its stake in an associate to 100% from 50% earlier, which should start contributing from 4Q11F onwards. Nevertheless, we lowered FY11F EPS by 13% and FY12F EPS by 15% to reflect slower growth in logistics business due to export slowdown in China. On an optimistic note, KPTT has been growing its river port logistics business in China to benefit from rising domestic demand in the long term.
Ex-M1, core business is trading at only 8x FY12F PE. We revised our TP to S$1.35 based on core business valuation of 10x blended FY11F-FY12F PE excluding M1. Due to the capex intensive nature of the core business, we conservatively lowered our PE multiple to 10x from 12x earlier. Downgrade to HOLD for limited upside potential.
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