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Keppel Telecom. & Transport. Ltd. Sees 34% Jump in Profit: Here’s What You Need to Know

Keppel Telecom. & Transport. Ltd. (SGX: K11), a subsidiary of Keppel Corporation Limited (SGX: BN4), released its third quarter results last Friday evening.

Some basic numbers

The company operates in 3 business segments:

1. Logistics, which provides a one-stop, integrated logistics solutions for a client’s entire supply chain;

2. Data centres, which provides reliable and cost-efficient data backups for companies’ business and IT operations; and

3. Investments – the cash flow generated from the other two business divisions are plowed into investments into several companies with the most important investment being a stake in local telecommunications provider M1 Limited (SGX: B2F).

For the quarter ended 30 September 2014, Keppel T&T’s revenue surged 29.5% from S$41.44 million a year ago to S$53.65 million, thanks to higher revenue from the Data Centre and Logistics segments. Meanwhile, the company posted even more impressive bottom-line growth with net profit soaring 34% year-on-year to S$20.72 million.

The increase in profit can be attributed to higher overall sales, other income, and higher share of results of associated companies. “Other income” here refers to distributions received from other investments, fair value gain on forward foreign currency contracts, and other sundry income. Then again, these are partly offset by higher operating and interest expenses which increased by 27.5% and 74% respectively.

Keppel T&T’s growth in net profit had caused its earnings per share to jump by 32% year-on-year to 3.2 Singapore cents. Meanwhile, its net asset value ordinary share had increased by 7.1% to S$0.82 per share compared to a year ago.

Financial position

Compared to the end of 2013, Keppel T&T’s balance sheet has weakened somewhat. Its net-debt position (total borrowings sans cash and fixed deposits) had increased from S$419.5 million to S$464.9 million.

Meanwhile, although Keppel T&T’s profit grew, it is actually generating negative free cash flow for both the quarterly and year-to-date periods due to higher capital expenditures made for investments in data centres and logistics facilities.

Prospects and valuation

Keppel T&T mentioned in its earnings release that it is moving ahead with its expansion plans for both its Logistics and Data Centre segments.

During the quarter, its Logistics business had commenced operations at its 10,000 square metre warehouse in Brisbane which serves “one of the world’s leading book publishers.” Keppel T&T also revealed that the company’s “logistics footprint will be strengthened [over the next few months] with the completion of Tampines Logistics Park warehouse in Singapore, and Tinajin Eco-City Distribution Centre in China.”

Thomas Pang, Chief Executive of Keppel T&T commented on the future of the Logistics segment:

“Keppel Logistics’ strong track record in providing quality warehousing and third-party logistics services has enabled us to build lasting partnerships with our clients. We are delighted that our productivity and efficiency have paved the way for our maiden foray into Australia and more opportunities in the Asia Pacific region.”

Meanwhile, there are interesting developments with Keppel T&T’s Data Centre business segment. Keppel T&T is preparing to inject some of its data centre assets into a data centre real estate investment trust (REIT), subject to market conditions and regulatory approvals. Keppel T&T’s data centre facilities are enjoying “strong market demand” and “high occupancy.” The company’s Keppel Datahub 2, “the newest data centre development in Singapore, has received a healthy take-up rate while fitting out work has been progressing well.”

Shares of Keppel T&T closed at S$1.59 last Friday. At that price, the company is valued at 14 times trailing earnings and 1.9 times its book value.

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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 James Yeo doesn’t own shares in any companies mentioned.