These 2 Stocks Have Delivered Weaker Numbers in Their Latest Quarterly Earnings

We’re in the earnings season again! As it is with every earnings season, there will be some stocks posting good results, some posting flat numbers, and some delivering weaker figures.

Let’s have a look at two stocks that belong to the third category. Coincidentally, they are both under the umbrella of Keppel Corporation Limited (SGX: BN4). Here they are:

1. Keppel REIT  (SGX: K71U) announced its 2017 second quarter earnings last week.

As a brief introduction, Keppel REIT is a real estate investment trust that focuses on commercial properties. Its portfolio currently consists of eight office assets located in Singapore (four) and Australia (four).

For the second quarter of 2017, the REIT’s property income was down by 1.7% year-on-year to S$39.8 million, resulting in a 1.7% fall as well in net property income to S$31.9 million. Consequently, Keppel REIT’s distribution per unit (DPU) declined by 11.8% from 1.61 cents a year ago to 1.42 cents.

On a brighter note, Keppel REIT has nearly completed the renewal of all of its leases that were supposed to expire in 2017. The REIT ended the reporting quarter with an overall occupancy rate of 99.8%. Notably, over 51.4% of its leases (in terms of nett lettable area) are not due for renewal until 2022 and beyond.

In its earnings release, Keppel REIT mentioned that “the impact of rising rates… is expected to be mitigated by active measures the Manager has taken to reduce interest rate risk.” The REIT also commented on its market conditions.

It said that the office market in Singapore is seeing early signs of recovery, according to property consultants. The average rental rates of Grade A office space had held steady quarter-on-quarter at S$8.95, although the occupancy rate for the CBD office market had decreased quarter-on-quarter to 94.1%. As for Australia, there’s “strong demand amid tight supply” in Sydney and Melbourne, while Brisbane and Perth “continued to show signs of recovery.”

2. Keppel Telecommunications & Transportation Ltd  (SGX: K11), or Keppel T&T, also reported its 2017 second quarter results last week.

As a quick introduction, Keppel T&T has logistics and data centre operations in Europe and Asia-Pacific. It is also the sponsor of Keppel DC REIT (SGX: ABJU), the first data-centre REIT listed in Asia.

During the second quarter of 2017, Keppel T&T’s revenue declined by 5.1% year-on-year to S$47.62 million. This drove a 45.3% fall to S$10.28 million for the company’s net profit attributable to shareholders. On a positive note, the company’s balance sheet strength improved slightly from end-2016, given the decline in its net gearing ratio (net debt divided by equity) from 0.53 to 0.46.

The company’s performance was driven mainly by weakness in the logistics business and the sale of certain subsidiaries.

Looking ahead, the company expects the volumes and margins of its logistics business to remain under severe pressure due to the challenging market environment. The picture with Keppel T&T’s data centre division is more positive. The Keppel DC Singapore 4 data centre has obtained full TOP (Temporary Occupation Permit) and commenced operations, and the division’s pipeline of enquiries remain healthy from existing and potential clients.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.