Markets and Investing
MARKETS & INVESTING | Staff Reporter, Singapore
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Keppel to focus on core logistics and data center operations

CIMB senses that Keppel will be undergoing major changes in the next 3 - 5 years, including expansion in China and Vietnam.

Here’s more from CIMB:

Following recent discussions with management, we sense change at Keppel T&T, traditionally seen as an investment holding company. Keppel T&T will be developing its core logistics and data center operations and reducing its reliance on associate contributions. Its growth trajectory should be elevated within 3-5 years,with expansion plans in China and Vietnam. It is currently undervalued, in our view. Excluding contributions from M1, it trades 7.0x CY10 EPS  cheap for a Keppel-related company. A fairer value for the group should be 10.7x with GGM, retention ratio 0.7, growth 5.3%, cost of equity 8.2%.Our SOP valuation suggests S$1.54. At current price levels, we see 22% upside for the stock.

We sense change.
Keppel Telecommunications and Transportation, a subsidiary of Keppel Corp, is typically seen as an investment holding company. However,following our recent discussions with management, we sense a strong motivation to develop its core logistics and data centre businesses. Management is divesting noncore investments and has secured several partnerships and projects to develop its core operations overseas.

Growth trajectory to be elevated in 3-5 years. Keppel T&T will be developing  a 35,000 sq m distribution centre in Tianjin-Eco City, China, slated for completion in 2013. Management also plans to exercise its expansion option in its Vietnamese logistics JV, following the lifting of foreign-investment restrictions. We also see growth drivers from its data centre operations and fund management. Lastly, management is on the prowl for acquisitions in the Asia-Pacific region.

Grossly undervalued. Excluding contributions from M1, Keppel T&T trades at a mere 7.0x CY10 EPS – very cheap for a Keppel-related company, in our view. A fairer value for the group should be 10.7x with GGM, retention ratio 0.7, terminal growth 5.3%, cost of equity 8.2%, based on projected fundamentals. Our SOP valuation suggests a value of S$1.54, offering 22% upside potential from current valuations.

 

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