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Why Has Keppel Telecom & Transport Ltd Fallen By 19.5% since December?

Keppel Telecom & Transport Ltd (SGX: K11) has seen its share price fall by 20% since the start of December 2014. At S$1.41 per share currently, it is actually just a hair’s breadth higher than its 52-week low of S$1.39.

Have there been any important developments with the company that might explain this fall? More important for investors, is this an opportunity for bargain hunting?

The IPO

Keppel T&T had recently spun-off its data-centre businesses through last month’s initial public offering of Keppel DC REIT (SGX: AJBU). Keppel T&T currently owns 30% of the REIT and the company is also the REIT’s manager; in this way, Keppel T&T can still benefit from any growth in the data-centre business.

Prior to the IPO, Keppel T&T’s other operating business segment dealt with logistics and this remains unchanged even after the listing. Keppel T&T continues to operate its logistics business, running logistics facilities in Singapore, China, Malaysia, Vietnam and Indonesia.

But, the logistics business segment only made up roughly one-quarter of Keppel T&T’s total net profit for 2013. With the listing of Keppel DC REIT, Keppel T&T’s data-centre businesses have now been reclassified into an investment in associates – this also means that Keppel T&T is now more akin to an investment holding company than a company with purely operating businesses.

Holding company discount

In its current incarnation, the main bulk of Keppel T&T’s value actually resides in its investments in Keppel DC REIT and Singapore’s third largest telecommunications operator, M1 Ltd (SGX: B2F). Keppel T&T owns 19% of M1, making the former one of the largest shareholders of the latter. For some perspective, close to half of Keppel T&T’s total profit for 2013 actually came from its 19% stake in M1.

Since both Keppel DC REIT and M1 are actually listed entities themselves, there’s little reason for an investor to choose Keppel T&T over a direct investment into the other two shares. What this means is that Keppel T&T’s shares might end up carrying a conglomerate discount. Conglomerates that have multiple investments in other listed companies sometimes find themselves trading at a discount to the sum of their parts – this is the conglomerate discount.

Foolish Summary

If the market would eventually heap a conglomerate discount upon Keppel T&T’s shares, then the company’s current fall in share price seems justified. But that said, it is still too early to tell how the market will view Keppel T&T going forward, but at the moment, the picture isn’t exactly rosy given the spectre of the conglomerate discount hanging around.

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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 writer Stanley Lim doesn’t own shares in any companies mentioned.