Keppel Telecommunications and Transportation (SGX: K11) is one of the smaller companies underneath the corporate umbrella of Keppel Corporation (SGX: BN4). As a company, it focuses on logistics and data centre businesses. Keppel T&T’s logistics arm spans five countries, namely Singapore, Malaysia, Vietnam, Indonesia and China. Meanwhile, its data centre business – the more profitable of the two – provides data centre co-location and other services in Singapore, Australia, Malaysia and Europe. And not many might realise this, but the company also holds a number of investments with a huge chunk of it residing in its 19%…
As a company, it focuses on logistics and data centre businesses. Keppel T&T’s logistics arm spans five countries, namely Singapore, Malaysia, Vietnam, Indonesia and China. Meanwhile, its data centre business – the more profitable of the two – provides data centre co-location and other services in Singapore, Australia, Malaysia and Europe.
And not many might realise this, but the company also holds a number of investments with a huge chunk of it residing in its 19% ownership of Singapore-based telecommunications provider M1 (SGX: B2F). Based on M1’s current market capitalisation of S$3.07 billion, Keppel T&T’s 19% stake’s worth some S$580 million; that’s very significant given Keppel T&T’s own market capitalisation of ‘only’ S$1.03 billion.
The logistics and data-centre outfit had just released its earnings for the first quarter of 2014 yesterday evening. Revenue earned for the quarter was S$48.7million, some 21.6% higher than a year ago. However, due to an even higher increase in operating expenses, its operating profit only improved by 4.7% to S$7.4million. Fortunately, Keppel T&T’s share of earnings from associated companies and joint ventures had improved by 12.4% to S$16.2million, with nearly half of that amount derived from the earnings of M1, which released its results a day earlier. All told, Keppel T&T finished the quarter with earnings per share of 2.8 Singapore cents, a 3.7% gain from the first quarter last year.
On the balance sheet front, net debt (total cash minus total debt) had increased by 6.7% to S$447.8million from the end of 2013. The company’s net debt to equity ratio also worsened from 0.77 to 0.79. This might be a cause for concern especially when most of its assets are in investments made in the equity of other companies (like M1, for instance) which might not provide consistent cash flow to service the interests on its debt.
The company continues to invest in its logistics and data centre businesses. Both businesses are also enjoying great efficiency, operating at almost full occupancy. Its data centre business is much more profitable in the first quarter of 2014, producing more than S$5.7 in net income for shareholders while the logistics business only produced about S$3.4million.
However, given the large contribution of Keppel T&T’s total earnings from M1 – a little more than half – the company is still very much dependent on the performance of its 19%-owned associate. Based on that, here’s an interesting thought: Unless Keppel T&T’s management decides to sell off its stake in M1 and reinvest the proceeds into its core logistics and data-centre businesses, the market might just view Keppel T&T as a proxy to owning shares of M1 indirectly.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.