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.
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.
Do you know more about this story? Contact us anonymously through this link.