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Keppel Telecommunications & Transportation Ltd’s Latest Earnings: What Investors Should Know

Keppel Telecommunications & Transportation Ltd (SGX: K11) released its 2017 first quarter earnings yesterday. The reporting period was from 1 January 2017 to 31 March 2017.

As a quick background, Keppel T&T has three business divisions: Logistics, Data Centers, and Investments. Part of Keppel T&T’s data centre-related business includes a stake in and management of Keppel DC REIT  (SGX: AJBU). As for the Investments division, one of its investments would be a 19% stake in Singapore’s smallest telco M1 Ltd (SGX: B2F).

You can catch Keppel T&T’s 2016 third quarter earnings report here.

Financial highlights

The following’s a rundown on some of Keppel T&T’s latest financial figures:

1. Gross revenue was $40.7 million in the reporting quarter, a 15.6% decrease from the same quarter a year ago.

2. Profit for the period was $11.9 million, a 20.2% year-on-year decline.

3. Earnings per share was down 12.5% from 2.4 cents in the first quarter of 2016 to 2.1 cents in the reporting quarter.

4. Keppel T&T generated negative operating cash flow of $1.2 million and spent $8.9 million on capital expenditures during the quarter. This gave the firm a negative free cash flow of $10.1 million, down from the negative free cash flow of S$4.9 million seen a year ago.

5. At the end of 31 March 2017, Keppel T&T had $172 million in cash and equivalents and over $505 million in debt. The company also had a net asset value of $1.44, up 10.8% from a year ago.

Operational highlights

Keppel T&T said that its top-line was lower due to lower revenue at both the Logistics and Data centre divisions. The latter disposed a 90% stake in Keppel DC Singapore 3 to Keppel DC REIT and moved a 50% interest in Keppel DC REIT’s Manager to Keppel Capital in 1 July 2016. Keppel Capital is the asset management arm of Keppel T&T’s parent, the conglomerate, Keppel Corporation Limited (SGX: BN4).

As mentioned earlier, Keppel T&T is a major shareholder of M1, together with Singapore Press Holdings (SGX: T39) and Axiata Group (KLSE: 6888.KL). In March, the trio started a strategic review of their shareholdings in the telco. There were no major updates on the matter given in Keppel T&T’s earnings release, but the company included this statement:

“In the Investment Division, Keppel T&T is currently undertaking a strategic review of its shareholdings in M1 Limited, together with the other significant shareholders (Singapore Press Holdings and Axiata Group Berhad). This may or may not lead to a transaction.

Keppel T&T will make further announcements as appropriate, if and when there are any material developments which warrant disclosure.”

Outlook

In its earnings release, Keppel T&T also provided the following outlook:

“In the Logistics Division, market outlook remains challenging with slowing economic and trade growth as well as margin pressures from intense market competition.

The Division has recently rolled out last-mile delivery services with a key healthcare account, using Courex’s crowdsourcing platform, and will continue to build on the synergy to pursue and capture growth in e-commerce fulfilment and urban logistics.

With the completion of Keppel DC Singapore 4 and PCCW Global – Keppel ICX (Hong Kong) in 2Q 2017, the Data Centre Division’s footprint will increase by over 195,000 sqft of Gross Floor Area. In Europe, the Division is taking over the operations at Keppel DC Frankfurt 1 and is actively engaging potential customers to fill up the remaining space.

The Division will continue to seek new asset development and acquisition opportunities in collaboration with the Alpha Data Centre Fund, and provide value-added services to further strengthen its market position.

The Group will continue its drive towards improving its cost efficiencies, seek opportunities for strategic investments in value accretive assets and at the same time, explore opportunities to unlock value and recycle capital.”

Keppel T&T’s shares closed at $1.75 yesterday. This translates to a historical price-to-book ratio of 1.22.

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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 Chin Hui Leong does not own shares in any company mentioned.