7 things I learned from Keppel Telecommunications & Transportation’s 2017 AGM

Keppel Telecommunications & Transportation (Keppel T&T) is a subsidiary of SGX-listed Keppel Corp and offers integrated services and solutions in two key segments: logistics and data centres.

Its logistics division operates in six countries — Singapore, Malaysia, Indonesia, Vietnam, China, and Australia — and provides warehouse management and supply chain management for its clients.

Its data centre division operates in nine countries — Singapore, Malaysia, China, Australia, Germany, Italy, Ireland, the UK, and the Netherlands. Keppel T&T designs, builds and operates its own data centres and provides data centre solutions for business and IT operations. Keppel T&T also owns a 30% interest in Keppel DC REIT, a data centre REIT.

With the continued growth of the internet, ecommerce, and cloud computing, I wanted to find out how Keppel T&T performed over the past year and its outlook for the year ahead.

Here are seven things I learned from Keppel T&T’s 2017 AGM.

  1. Keppel T&T reported a slight 3% drop in revenue to $194.6 million for 2016 but net profit increased 14% to $105.1 million. This was driven mainly by strong growth in the data centre division and a one-off gain from the divestment of its 50% interest in Keppel DC REIT Management Pte Ltd (the manager of Keppel DC REIT). In fact, Keppel T&T was able to grow its net profit despite a $16 million loss suffered by its logistics division.
  2. The $16 million loss suffered by Keppel T&T’s logistics division was contributed mainly by a $26 million impairment loss in fixed assets. The impairment was caused by a write-down in fair value on logistics assets in China due to sustained losses generated by these assets. Moving forward though, Keppel T&T still has a positive outlook for logistics trends. According to research done by Google and Temasek, the Southeast Asian e-commerce market is projected to grow at a CGAR of 32% to reach US$88 billion by 2025.
  3. Keppel T&T’s data centre division is seeing strong growth. Including its interests in Keppel DC REIT and Alpha Data Centre Fund, the company has now expanded its portfolio to 17 data centres comprising 1.4 million square feet of net lettable area – a 50% increase in NLA from 2015. This was mainly due to the addition of three new data centres in Europe and the co-development of an international carrier exchange in Hong Kong. Moving forward, the management sees sustained growth in the data centre industry with the cloud computing market projected to grow at a CGAR of 61% from 2015 to 2020.
  4. A shareholder unsurprisingly asked about the $26 million impairment loss that Keppel T&T suffered and why the loss was so high. Chairman Loh Chin Hua answered that although the amount looks large, it has to be taken into context as the company has significant exposure in China. He revealed that one of the troubled assets was Jilin Food Zone Logistics Park where demand was slower than what the management had anticipated. The chairman assured that the management takes this matter seriously and the impairment was done to ensure that the company’s assets are carried at the right value on the balance sheet.
  5. Another shareholder was concerned about Keppel T&T’s stake in M1 as the telco’s share price has been tumbling due to the upcoming introduction of the forth telco in Singapore. The chairman pointed out that, even though recent times have been tough for M1, the telco has paid good dividends and been a good investment for Keppel T&T over the years. (Keppel T&T was part of the original group of shareholders that started M1.) He also shared that the Keppel T&T board is undergoing a strategic review of M1 which may or may not lead to a transaction. He advised shareholders not to speculate and he declined to reveal more.
  6. A shareholder asked if the management had any plans to divest any data centres in the near future. The chairman explained that Keppel T&T’s data centre business model is to design, build and operate its data centres, but not to own them for the long term. Once a data centre has been ‘derisked’ and earns a stable income stream, the asset would then be divested to Keppel DC REIT. Keppel T&T would still earn fees from operating the data centre and recurring distributions from Keppel DC REIT as the company still owns a 30% stake in the REIT. The chairman couldn’t give any details on which particular data centre would be divested next but reiterated that the goal was to sell a data centre once it was stabilized.
  7. A shareholder mentioned that Mapletree Industrial Trust (MIT) recently announced plans to invest $60 million to develop a third data centre and asked the management for their view on this development. CEO Thomas Pang said the data centre industry is an attractive one and is bound to attract competitors. However, he pointed out MIT serves a smaller part of the value chain as they only build the ‘brick-and-mortar’ of a data centre and don’t fit the building with its mechanical and electrical infrastructure nor provide the services to run the data centre. In any case, the CEO said that he welcomes strong competition because it helps keep everyone on their toes and pushes all industry players to offer the best solutions to the customer.

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

Adam Wong is the editor-in-chief of The Fifth Person and author of the national bestseller Lucky Bastard! which made the Sunday Times Top 10 Bestseller’s List in 2009 and Value Investing Made Easy which made the Kinokuniya Business Bestseller’s List in 2013. In 2010, he appeared on U.S. national television on the morning show The Balancing Act. An avid investor himself, Adam shares his personal thoughts and opinions as he journals his investing journey online.

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