Monday, July 22, 2013

Keppel T&T : Strong data centre delivery (CIMB)

Keppel T&T
Current S$1.47
Target S$1.64
Strong data centre delivery

 KPTT delivered a strong set of results in 2Q13, with earnings driven by higher occupancy in its data centres. Its subsidiary acquired a second port in Foshan, China, and we believe this new acquisition and the current logistics projects in China will help to build its core earnings.

2Q net profit of S$16.4m was above expectations due to strong data centres contribution. 1H earnings formed 53% of our full-year estimate. We raise FY13-15 EPS by 1-3% for better-than-expected data centre revenues. We maintain our Outperform call with a higher SOP-based target price of S$1.64. Catalysts could come from an increase in data centre occupancy and the opening of two logistics parks in China in FY14-15.

2Q13 highlights
Core operating profit grew by 19% qoq to S$8.4m, driven mostly by higher occupancy rates in its data centres. Capex increased to S$74m due to the acquisition of a new building in April and the fit-out of its existing data centres, which will further increase occupancy. Gearing subsequently increased to 0.82x. We are not overly concerned about this high level of gearing as cashflow generation has been strong.

Recent acquisitions help to build core earnings
KPTT’s subsidiary, Keppel Logistics (Foshan) Limited (KLF), recently acquired a 60% stake in a port in Sanshui for Rmb166m. This port will be the second integrated logistics facility operated by KLF in Foshan, and reflects KPTT’s conviction in the South China region. With the new Sanshui port serving imports and the existing Lanshi port serving exports, KLF can be a one-stop solution provider for transhipments in Foshan. KLF can also provide more value-added services, which will improve margins. We are positive on the acquisition, as it will help to build up KPTT’s core earnings and reduce its reliance on its 20% stake in M1.

KPTT is currently trading at an 11.2x fwd P/E, 0.5 s.d. below its historical average of 12.0x. Due to its 20% stake in M1, it has typically been seen as a holding company and has traded at a 20-25% discount to its fair value. As KPTT grows its core operations, we believe this discount will narrow to 15%. Maintain Outperform.

We are positive on the Sanshuiportacquisition
KPTT’s subsidiary, Keppel Logistics (Foshan) Limited (KLF), entered into a share purchase agreement with Guangdong Sanshui Development Investment Holding Co. Ltd on 12 July to purchase a 60% shareholding interest in Foshan Sanshui Port Development Co., Ltd for Rmb165.73m. The other 40% is held by the local Sanshui government. The acquisition is to be funded by internal funds and bank loans, and management expects the acquisition to be completed by end-3Q13 or early-4Q13.

Foshan Sanshui Port Development Co. is engaged in the development and operation of a port in the Sanshui District, Foshan City, Guangdong Province. The port has been operational since 2000, has a 160m multi-purpose berth, over 5,000 sq m of warehouse space and an annual handling capacity of 300,000 TEU. This will be the second integrated port logistics facility operated by KLF in Foshan City, with the existing Lanshi port featuring 40,400 sq m of warehouse space and throughput of 264,000 TEU. Although the new Sanshui port has a much smaller warehouse space, it is primarily used for importing goods such as ceramics, porcelain and automotive parts which do not need to be stored at the site for long. Furthermore, the existing Lanshi port is primarily used for exports, so KLF can operate as a one-stop solution provider for transhipments in Foshan, and leverage its logistics capabilities to provide more value-added services such as freight forwarding and inventory management.

KLF has a strong track record in Southern China, having grown Lanshi port’s throughput from just 41,600 TEU in 1994 to 264,000 TEU in 2012. This new acquisition reflects management’s conviction in the South China region, especially since Foshan is a prime geographic location with close proximity to the nearby trading hubs of Hong Kong, Shenzhen and Nanshan (Figure 1). We expect KLF to capitalise on its existing operations in Foshan to grow the Sanshui port and provide more value-added services, which will improve margins in the logistics segment. Also, given that the local Sanshui government still has a 40% stake in Sanshui Port Development Co., we take this as a positive sign that the government is confident in KLF’s expertise in port logistics operations and its ability to grow the existing business.

We are positive on this acquisition, as there are significant synergies to be recognised between the existing Lanshi port, the new Sanshui port and the existing Nanhai distribution centre. We also like that KPTT has recently been active in acquisitions, which will help to build its core earnings base and reduce its reliance on its 20% investment in M1. As KPTT grows its core, we expect the holding company discount to narrow from its historical 20-25% to 15%. In light of this acquisition, we have adjusted our estimates to account for higher logistics revenues in FY14 and onwards, although this is offset by higher interest expense and depreciation charges.

Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 18/07/13

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