Keppel T&T

Keppel T&T

Deeply undervalued
KPTT SP / KTEL.SI | ADD - Maintained | S$1.49 /Tp S$1.93▲

Mkt.Cap:US$615.90m | Avg.Daily Vol:US$0.48m | Free Float:19.30%
Logistics | Author(s): Jessalynn CHEN +65 62108672,

KPTT’s FY14 core net profit of S$72m exceeded our expectations, at 112% of our full-year forecast. This was mainly due to acquisition fees earned by KPTT through its wholly-owned subsidiary, Keppel DC REIT Management. Due to the one-off gain recognised from the sale of its data centre assets, a special DPS of 11.5 Scts was declared, bringing total DPS to 15 Scts (implying a 10% dividend yield). We trim our FY15-16 EPS by 2-3% to account for: 1) the divestment of its data centre assets to Keppel DC REIT, 2) management fees earned from the REIT, and 3) associates contributions from its 30.1% stake in the REIT. Our SOP target price inches up to S$1.93. KPTT remains an Add, with asset recycling and new logistics capacity additions as the key catalysts.

Results highlights
Excluding the one-off divestment gain from the sale of its data centre (DC) assets, FY14 core operating profit grew 21% yoy and core net profit rose 14% yoy to S$72m. The yoy gain was boosted mainly by acquisition fees earned by Keppel DC REIT Management (KDCRM), a wholly-owned subsidiary of KPTT and the REIT manager for Keppel DC REIT. Based on a 1% acquisition fee, this translates into an additional S$10.3m in DC revenue. Excluding this amount, we estimate that net profit would have been in line with our estimate (S$64m).

Special DPS of 11.5 Scts declared
KPTT realised a one-off gain of S$175m from: 1) the divestment of its DC assets to Keppel DC REIT, and 2) return of capital from its stake in the Securus Data Property Fund. Of the total amount, it paid out 36% to shareholders, translating into a special DPS of 11.5 Scts. This brings total DPS for FY14 to 15 Scts, which implies a 10% dividend yield.

Undervalued at current price
KPTT is trading at 10x forward P/E, more than 1 s.d. below its historical mean. It is also trading at a 14% discount to the combined market value of its 20% stake in M1 and 30.1% stake in Keppel DC REIT – implying that the market has ascribed almost no value to its logistics and data centre assets. We see value in the stock at these levels, which represent an attractive entry point, in our view. Going forward, we expect catalysts from two engines: 1) spin-off of DC assets into the REIT, and 2) new logistics warehouse additions. For the former, KPTT plans to inject Keppel Datahub 2 and Almere Data Centre 2 into the REIT in 2015-16 and 2016-17 respectively. For the latter, new warehouse capacity will come from the opening of Tampines Logistics Park, Tianjin Eco-city Distribution Centre and Keppel Wanjiang Logistics Park in 2015.