CIMB RESEARCH on 16 Oct 2012
Q3 2012 came in slightly below expectations. KPTT has been attracting interest lately following speculation about a buyout of M1. However, the likelihood of KPTT divesting its M1 stake is low and investors could end up with a hot potato when the music stops.
Nine-month 2012 earnings were 67 per cent of our and consensus FY12 estimates. Q3 2012 disappointed on higher interest and depreciation charges, and lower M1 earnings. We cut our FY12-14 EPS for the higher costs and lower M1 profit. But our SOP (sum of parts)-based target price is higher as we roll forward to CY14. The current valuation is too rich for its near-term growth. Downgrade to "underperform" from "neutral".
Q3 2012 core net profit of $13.5 million (+17.8 per cent y-o-y) came in slightly below our $14 million estimate on higher interest expenses and depreciation incurred on logistics and data centre fit-in during the quarter. Strong earnings momentum continued in Q3 2012 as core operating profit held steady q-o-q on healthy data centre and logistics service demand in Singapore.
Disappointment came from M1, which saw a second consecutive drop in quarterly earnings. Our telco analyst had cut M1's estimates by 9-14 per cent on increased subscriber acquisition costs. This accounted for most of our earnings downgrade.
There is market talk that Axiata could make a general offer for M1 in a bid to take it private. KPTT, with its 20 per cent stake in M1, could have benefited from strong interest following this speculation. However, we reiterate our view that KPTT is unlikely to divest its M1 stake in the near term, as the telco contributes 50 per cent of its annual earnings, and KPTT could face difficulties reinvesting the freed-up capital into more earnings-accretive projects to replace M1's contributions.
UNDERPERFORM
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