Keppel Telecom & Transport Ltd’s Latest Earnings: Fast Growth Nowhere in Sight

2015 is the first year that Keppel Telecom & Transport Ltd (SGX: K11) will be reporting its financial results after the spinoff of some of its data centre assets into Keppel DC REIT (SGX: AJBU) last December.

And yesterday, Keppel T&T handed in its fiscal first quarter report card for the three months ended 31 March 2015.

The company’s revenue for the quarter saw a 1.6% drop to S$47.9 million when pitted against the same quarter a year ago.

Fortunately, Keppel T&T’s bottom-line had improved slightly with a 2.3% increase in profit to S$15.8 million. The profit growth had been largely due to a 9% increase to S$17.76 million for the company’s share of results of associated companies and joint ventures; that in turn had come about due to the classification of Keppel DC REIT as an associate.

Drilling deeper

A granular look at the different segments of Keppel T&T’s business will give us a better idea of just why its top- and bottom-lines had changed the way they did in the quarter.

Keppel T&T currently has three business segments: Logistics; Data Centre; and Investments.

The company’s slight dip in revenue was mainly due to a 30% decline in Data Centre revenue (from S$14.1 million to S$9.85 million), which was partially offset by a 10% uptick in Logistics revenue (from S$34.6 million to S$38.1 million). The Investments segment does not contribute to Keppel T&T’s revenue.

While a 30% decline in Data Centre revenue looks alarming, it is actually an expected result given that Keppel T&T had spun-off data centres into Keppel DC REIT.

Keppel T&T’s profit for the quarter was up by only 2.3% year-on-year, as mentioned earlier. This was really due to a worrying 26% drop in profit (from S$3.38 million to S$2.51 million) from the Logistics segment; despite Keppel T&T having invested actively in the segment, there’s still been a lack of any sustained positive signs there.

The Data Centre segment might be in a better shape compared to the Logistics segment. Even after the spinoff of some of its data centre assets, Keppel T&T still managed to clock an 8% increase in quarterly profit (from S$5.73 million to S$6.19 million) for the segment.

The last segment – Investments – had a nice quarter with profit increasing by 12% from S$6.32 million to S$7.08 million.

Future outlook

According to Keppel T&T’s earnings release, most of its logistics assets in both Singapore and China are showing encouraging data.

But, investors might want to keep an eye on how the segment progresses; during the quarter, Keppel T&T had sold off some of its logistics assets, but there is no indication yet that the company’s reinvestments into the logistics space are bearing fruit given that the segment’s profit is falling despite an increase in its asset base.

As for the Data Centre segment, the company will be seeking out new opportunities in Asia Pacific and Europe.

Foolish Summary

Keppel T&T’s in businesses that have huge growth potential. The high likelihood that cloud computing and e-commerce would flourish in the future in turn translates into the possibility of data centres and logistics facilities enjoying huge demand in the years ahead.

However, Keppel T&T’s current results seem to have failed to reflect that potential. Instead of seeing impressive growth, Keppel T&T only managed to book a 2.3% uptick in quarterly profit in the first three months of 2015. This raises a question “Are its sectors failing Keppel T&T or is Keppel T&T failing in its sectors?”

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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 does not own any companies mentioned above.