“Given the earnings potential of its data centres, it should trade at about 30x forward PE like peer SUNeVision (29x forward PE) instead of current implied 13-14x forward PE,” says lead analyst Edison Chen in a Wednesday report.
In 1Q17, KPTT reported net profit of $11.6 million, 13% lower from a year ago primarily due to lower profit contribution from KDC SG3 (T27), which has been divested and now accounted for as an associate stake.
(See also: Keppel T&T 1Q earnings drop 13% to $11.6 mil on lower revenue)
Its logistics division posted 46% y-o-y lower operating profit of $1.4 million on lower revenue in Singapore due to intense competition while the data centre division reported a temporary operating loss due to higher staff and SG&A costs to capture new opportunities in the data centre market.
Still, Chen expects 1H17 to be weak as KPTT undergoes a transition to enter its next phase of growth although demand for its data centres should remain strong, maifesting in high occupancy rates for T20 and the new PCCW Global – Keppel ICX (HK) data centre.
“Earnings for the former is expected to kick in during 2Q17 with an immediate 25% take-up rate, while the latter will likely contribute from 4Q17 onwards,” adds Chen.
Meanwhile, the logistics sector is looking increasingly “hot” with the recent GLP and CWT M&A announcements. KPTT’s logistics arm is already a beneficiary of this shifting trend with the HK$250 million ($45 million) sale of its 10% stake in the Asia Airfreight associate, representing a disposal gain of $19 million.
As the M&A trend continues, Chen says KPTT is well positioned to dispose of more non-core assets and recycle capital to focus on its core businesses.
“Given $291.8 million NAV for its logistic segment, we note the potential upside even if the entire logistics segment is valued at 1.0x P/B. However, we opt to maintain our conservative stance with our 10x forward PE valuation,” concludes Chen.
Shares of KPTT are down 1 cent at $1.74.
