SINGAPORE (Sept 8): UOB KayHian is maintaining its “buy” call on Keppel T&T given the group’s data centre (DC) strategy of “supercharging” the development cycle using Alpha DC Fund (ADCF).
Although this strategy creates greater uncertainty in the short term, it enables the manager to develop more than one project at a time.
It will also speed up development of the properties given demand for cloud-enabled DCs remain strong with players clamouring for larger critical capabilities and higher power densities.
In a Friday report, analyst Edison Chen says, “We believe at least one large-scale project, done through ADCF, is in the works, which will generate substantial fee income given its size. Hence, Keppel T&T will continue to see earnings growth (albeit delayed) despite the divestment of KDC SG4.”
Keppel T&T can then concurrently develop more than two projects at a time through the fund, reaping fee-based income, which will be a percentage of each DC’s project cost or income.
The more projects undertaken by ADCF, the more Keppel T&T stands to gain, without having to utilise its own balance sheet.
Still, UOB KayHian has lowered the target price of the stock to $1.90 from $2.53 previously as the group’s logistics business is undergoing a revamp of its business model and the complete turnaround is only expected in 2019.
The analyst believes that the group’s acquisition of Courex is at the core to its transformation, allowing the group to capture additional parts of the value chain.
“Feedback from clients using its omni-channel management solution has been positive, and we believe earnings should improve over time as the service is expanded to clients in the region,” says Chen.
As at 1.05pm, shares in Keppel T&T are trading at $1.51 or 17.8 times 2018 forward earnings and a dividend yield of 1.9%.
