Keppel Telecommunications and Transport

DBS GROUP RESEARCH on 18 July 2012

KEPPEL Telecommunications and Transport (T&T) H1FY12 net profit of $28.7 million (down 9 per cent y-o-y) was below our estimate of $31 million.

M1 was the key culprit as associate's pre-tax contribution declined 12.6 per cent to $26.6 million. M1 disappointed due to rising popularity of Android phones, where subsidies are expensed immediately instead of amortised as is the case with iPhones.

Data centre's profit came at $7.4 million (up 32 per cent y-o-y) as revenue grew to $22.4 million.

Logistics' profit was 8 per cent lower at $7.1 million despite revenue rising 7 per cent to $23.0 million.

This can be attributed to sale of its stake in "Wuhu Annto" resulting in lower associate contribution of $2.6 million (down 37 per cent y-o-y).

New revenue sources still drive earnings from FY12F onwards. These include:

• $18-20 million revenue from its new distribution space in Foshan; 
• new contribution from data centres in Brisbane and Sydney, where Securus Fund acquired a 70 per cent stake for A$60 million (S$78 million) each (KPTT has a 30 per cent stake in Securus).

Securus also acquired a data centre in London in Feb 2012 and 80 per cent stake in a data centre in Malaysia in June 2012 for an undisclosed price.

Keppel T&T has enough funding in place for future capex requirements.

FY12 forward capex is likely to remain around $100 million (down 30 per cent y-o-y) for investments in data centres and logistics.

However, funding is not an issue as KPTT has established a $500 million multicurrency medium term note programme under which it may issue notes from time to time.

Recommend "hold" for 3 per cent yield and decent growth.

We trim our FY12/13 forecasted earnings by 8 per cent each.

Our TP is reduced marginally to $1.19 as we roll over to 10x PE on blended FY12-13 forecasted basis versus forecasted FY12 earlier.
HOLD