• Keppel Telecommunications & Transportation’s earnings are likely to be lacklustre in the near to medium term as the business gradually transforms. Upside exists in new datacentre developments, which remain on the horizon.
• Despite a lack of catalysts, Keppel Telecommunications & Transportation’s share price has fallen below intrinsic value, albeit with limited upside.
• We slash our 2018-20 earnings estimates by 25-33%. Until catalysts or new developments emerge, downgrade to HOLD with a target price of S$1.51. Entry price: S$1.36.

What’s New

Datacentre: Earnings likely dismal for 2H18; developments remain on the horizon.

Keppel Telecommunications & Transportation’s (KTT) datacentre segment will likely continue to be a drag in 2H18 due to elevated staff costs. Our channel checks suggest that the ramp- up is likely in preparation for several datacentre projects that KTT is pursuing and possibly overseas.

Contributions, derived from fee management income, may only kick in materially from next year. Our estimates currently do not account for these projects but take into account the elevated headcount costs.

Source: UOB Kay Hian Research - 28 Aug 2018