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Keppel Telecommunications & Transport’s Latest Earnings: Profit Drops 17%

Keppel Telecommunications & Transport (SGX: K11) had handed in its fiscal third-quarter earnings report card (for the three months ended 30 September 2015) last evening.

As a short introduction for context later, Keppel T&T is in the logistics as well as data centre business. The company also has an investment arm that counts a 19% stake in local telco M1 Ltd (SGX: B2F) as its most significant investment.

Financial highlights

For the reporting quarter, Keppel T&T saw a 5.1% year-on-year dip in revenue to S$50.9 million. The Logistics division had achieved revenue growth, but that wasn’t enough to offset the absence of revenue from two data centre properties that were spun-off into Keppel DC REIT (SGX: AJBU) in December 2014.

The lower top-line had an impact on the bottom-line as Keppel T&T’s profit for the quarter attributable to shareholders had slumped by 17.1% to S$15.3 million.

On the cash flow front, the picture was a little better. Keppel T&T’s free cash flow for the quarter came in at –S$3.2 million (S$1.8 million in operating cash flow and S$5.04 million in capital expenditures), but that was an improvement compared to a year ago; in the third-quarter of 2014, Keppel T&T had negative free cash flow of S$39.5 million (S$14.7 million in operating cash flow and S$54.1 million in capex).

Moving on to the balance sheet, Keppel T&T has seen its financial position improve compared to a year ago. As of 30 September 2015, the firm had a net debt position (total borrowings minus total cash & fixed deposits) of S$290.8 million; this is significantly lower than the number of S$464.9 million seen as of 30 September 2014.

A future outlook

Keppel T&T’s hard at work improving the occupancy rates of its warehouses in Southeast Asia and the efficiency of its operations in its China business. The firm commented that it’s ramping up marketing of its Tianjin Eco-city distribution centre and Lu’An logistics park in an effort to secure strong occupancy when they open for business at the end of 2015 and early 2016, respectively.

For the Data Centre division, Keppel T&T commend that its properties “has maintained near-full occupancy.” A conditional agreement for the acquisition of a new property has also been inked; Keppel T&T has the intention to redevelop the real estate into a data centre, subject to regulatory approval.

According to Keppel DC REIT’s IPO prospectus, certain societal trends – such as growth in internet usage and data creation – are driving the need for data centres. Keppel T&T commented in its earnings release that its Data Centre division “continues to pursue opportunities to expand, riding on the growing data centre demand.”

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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.