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

Keppel Telecommunications & Transport Ltd (SGX: K11), or Keppel T&T, posted its second-quarter earnings yesterday. The reporting period ran from 1 April 2017 to 30 June 2017.

As a quick background, Keppel T&T has logistics and data centre operations in Europe and Asia-Pacific. It is a subsidiary of the conglomerate, Keppel Corporation Limited (SGX: BN4), and it is also the sponsor of Keppel DC REIT (SGX: ABJU), the first data centre real estate investment trust (REIT) listed in Asia. For the latest earnings coverage of the REIT, check out this link here.

Financial highlights

For the quarter, the firm saw its revenue decline 5.1% year-on-year to S$47.6 million while net profit plunged 45.3% to S$10.3 million. Consequently, earnings per share tumbled from 3.4 cents a year ago to 1.8 cents in the latest quarter.

Keppel T&T cited three main reasons for the drop in topline and they are:

1) Weaker revenue from the Logistics Division;

2) Disposal of 90% interest in Keppel DC Singapore 3 Pte Ltd to Keppel DC REIT; and

3) Disposal 50% interest in Keppel DC REIT Management Pte Ltd to Keppel Capital on 1 July 2016.

Now turning our attention to the balance sheet, Keppel T&T ended the quarter with a stronger balance sheet as compared the end of last year. As at 30 June 2017, it had a net debt of S$419.5 million while six months ago, this figure was at S$482.2 million. Thus, the net gearing ratio improved to 0.46 from 0.53.

Let’s look at the cash flow from operations now. The firm used S$7.2 million in net cash for the quarter as compared to a S$2.4 million net cash inflow last year. The decline was mainly due to higher cash outflow for working capital requirements.

There were no dividends declared for the quarter.

Outlook

For the Logistics business division, the firm said that “volumes and margins remain under severe pressure with the challenging market outlook” and that it will “continue to focus on building complementary capabilities to capitalise on the growing e-commerce sector”. It acquired Courex in October 2016 and the division is undergoing a “transformation journey” to tap on the newly acquired firm’s expertise.

As for the Data Centre division, “Keppel DC Singapore 4 has obtained full Temporary Occupation Permit (TOP) and commenced operations. Pipeline of enquiries remains healthy from existing and potential new clients. The Division is partnering with several government agencies and technology partners to explore innovations in cognitive and green data centre solutions” in Singapore. It will also “continue to pursue new asset development and acquisition opportunities to expand its footprint in its target markets, while at the same time, grow its service fee income”.

Based on its closing price of S$1.66 yesterday, Keppel T&T is valued at aroundto 9 times trailing earnings.

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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 Sudhan P doesn’t own shares in any companies mentioned.