Latest Earnings From Keppel Telecommunications & Transport Ltd: Some Headwinds Ahead

Keppel Telecommunications & Transport Ltd (SGX: K11) had delivered its first-quarter earnings for its fiscal year ending 31 December 2016 yesterday evening.

Keppel T&T has three business divisions, namely, Logistics, Data Centers, and Investments. The investment arm consists of, among other investments, a stake in local telecommunications outfit M1 Ltd  (SGX: B2F).

Financial and business highlights

For the reporting quarter, Keppel T&T saw a 0.7% increase in revenue to S$48.2 million from S$47.9 million in the same period a year ago.

But, Keppel T&T’s net profit attributable to shareholders was down by 15.2% year-on-year to S$14.9 million. This also resulted in a 14.3% decrease in earnings per share to 2.4 cents.

On the cash flow front, Keppel T&T didn’t do well too. Net cash from operating activities had declined from S$11.1 million in the first-quarter of 2015 to just S$3.8 million in the reporting quarter. Free cash flow (net cash from operating activities minus addition to fixed assets) for the reporting quarter was a negative S$4.9 million, which was an improvement from the negative free cash flow of S$12.1 million seen the year before.

Moving on to Keppel T&T’s balance sheet, the company ended the quarter with total debt of S$487 million and cash and cash equivalents of S$156 million. This implies a net debt of S$331 million, which is an increase from the net debt of S$201 million (cash & equivalents of S$284 million and total debt of S$485 million) seen in the first-quarter of 2015.

Lastly, Keppel T&T’s net asset value per share had decreased marginally from S$1.31 a year ago to S$1.30.

Future outlook

For the Logistics division, Keppel T&T commented that a “slowdown in China and Southeast Asia continue to pose challenges.”

Some bright spots in the division include the commencement of operations in the Vietnam-Singapore Industrial Park 1 warehouse for a customer that is in the fast moving consumer goods business. In Singapore, more contract wins also led to an expansion of the company’s footprint in the healthcare sector. Lastly, on China, the company stated that its projects under development in Tianjin Eco City and Lu’an are “on track” to commence operations later this year.

Keppel T&T also said that the division’s focus is on “building sales pipelines in Southeast Asia and China, and managing costs in existing operations.”

Moving on to the Data Centre division, Keppel T&T commented that occupancy at its data centres are still “healthy.” Updates about ongoing projects were also given:

“Keppel Datahub 2 is undergoing its last phase of fit-out works and its net lettable space has been fully contracted. Construction has commenced for Keppel Datahub 3, its fourth data centre in Singapore. A Memorandum of Understanding was signed with the National Supercomputing Centre in Singapore to explore collaboration in areas of supercomputing, networking and green technology. The Division’s strategy is to provide more value-added services to the tenants.”

Currently, Keppel DC REIT Management Pte Ltd, a wholly-owned unit of Keppel T&T, is the manager of the data-centre focused real estate investment trust, Keppel DC REIT (SGX: AJBU). But, Keppel Corporation Limited (SGX: BN4) – the parent of Keppel T&T – has the intention to consolidate Keppel DC REIT Management with three other of its asset management units. Keppel Corporation has the intention to complete the consolidation by the second-half of this year, subject to regulatory approvals.

Shares of Keppel T&T closed at S$1.40 yesterday, giving it a trailing PE ratio of just 9.

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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 Esjay  owns shares in Keppel Corporation.