THE SELLDOWN on Keppel Telecom and Transport may have slashed its stock price by more than half from S$4.10 to S$1.70 in two trading days, but its historic price earnings is still a pricey 18x, compared to 7.5x for regional logistics player, CWT.
Keppel T&T's second-largest shareholder, Kapital Asia sold 2.658 million shares on Friday, 26 Sep 2008 at $4 to $3.50, according to an announcement Keppel T&T made on SGX.
The company believes the fire sale arose due to force selling on Kapital Asia and the fund’s substantial shareholders (Agus Anwar and Marcel Tjia).
Investors may be tempted to buy the stock in hope of a rebound in time to come as no significant changes were reported on the underlying business fundamentals.
However, Keppel T&T’s price earnings now at about 18x (based on yesterday's close price of S$1.65) remains rich by standards of the current market sentiment.
Consider: even current market valuation on Keppel Corp, its blue chip conglomerate parent, is much lower at a historic PE of 10.5x.
| Price | Market Cap | 1H08 Sale | Operating | 07PE | |
KepT&T | S$1.65 | S$911m | S$61.8m | 10.3% | 18X |
| CWT | S$0.50 | S$287m | S$285m | 7.2% | 7.5X |
| M1 | S$1.82 | S$1.6bn | S$409.3m | 25% | 10X |
Yet, there is no direct analyst coverage on the 80%-owned subsidiary of Keppel Corp.
Here is a summary of its operations:
Logistics contributed 77% or S$47.8 million to Keppel T&T’s top line for the first interim period ended 30 Jun 2008.
Network engineering services contributed 22%.
The group’s crown jewel, however, is its investment of 20% in local cellular phone service provider MobileOne, which has a historic PE of 10x and operating margins of 25%.
The Investments segment contributed only 1% to 1H08 top line but share of profits from associates (which includes M1) contributed the lion’s share to profit before tax: 70%.
Integrated Logistics Service Provider
Keppel T&T’s integrated logistics services include international sea freight forwarding, port operations as well as related services such as trucking, airfreight and rail.
Its wholly-owned subsidiary, Keppel Logistics, owns Foshan Lanshi Port, a Grade II national port in China with all the requisite government bureaus located within the port.
The port has space for 6 berths totaling 370 m, and is able to handle 1000-dwt barges. Its handling capacity is 2 million tons per annum, including 200,000 TEU containers.
Other shipping related services include a container yard, 40,000 sq m of warehousing space, customs inspection and declaration, as well as ship agency.
It is also is a non-vessel operating common carrier (NVOCC) certified by China’s Transportation Ministry.
NVOCC is a sea freight forwarding service provided to shippers with shipments that come up to less than a full container load.
“Non-vessel operating” refers to the fact that NVOCC service providers do not operate vessels, but book space in bulk on ships to transport containers whch they own.
Their containers are ”common carriers” that hold loose cargo consolidated from the sale of shipping space to smaller shippers.
Keppel T&T's logistics segment operating margins were 10.6% for 1H08.
Network engineering
This segment involves the provision of broadband network services in various European countries, USA, and Asia through its wholly-owned subsidiary ECHO.
It also provides telecom products and services in various South East Asian countries.
The segment has been suffering a small operating loss, but share of profits from associates boosted profit before tax to S$2.9 million for 1H08.
Like Keppel Corp, Keppel T&T is a true conglomerate that diversifies earnings geographically and through acquisitions.
