- Widening discount Concerns of a fourth telco entrant in Singapore has led to the steep fall in M1’s share price in recent months. This in turn has affected KPTT’s share price, due its 19% stake in M1.
- But we believe KPTT 's selldown has been overdone as it is trading at a 7% discount to the market value of its combined stakes in M1 and Keppel DC REIT – implying that the market is ascribing no value to its core logistics and data centre businesses.
- At 10.6x FY16 P/E, we believe the current share price offers value and presents a good entry point.
- We keep our Add call but lower our SOP-based target price to S$1.86 to reflect the lower market value of KPTT’s stakes in M1 and Keppel DC REIT.
- Potential catalysts include capital recycling as KPTT divests its data centre assets to Keppel DC REIT.
What Happened
- KPTT’s share price hit a 22-week low of S$1.455.
- The recent selldown has been fuelled by the fall in the market value of its 19% stake in M1, following concerns that a potential fourth telco entrant in Singapore will dilute M1’s market share.
What We Think
Market is pricing in zero value for the core business.
- We believe the selldown has been overdone.
- KPTT’s shares are now trading at a 7% discount to the combined market value of its 19% stake in M1 (M1 SP, Hold, TP: S$3.80) and 30% stake in Keppel DC REIT (KDCREIT SP, Not Rated). This discount has widened in recent weeks (see Figure 1), and implies that the market is ascribing no value to KPTT’s core logistics and data centre businesses.
Core business is worth at least S$306m.
- Our SOP methodology values KPTT’s logistics business at S$234m (12x FY16 P/E) and data centre segment at S$144m (15x FY16 P/E), for a total value of S$378m for the core business.
- To take a more conservative approach, we estimate that the net book value of the core business is worth S$306m. This is based on the S$323m fixed asset value of its logistics assets (recorded at historical cost less accumulated depreciation) and S$185m for its data centres (recorded at fair value), less S$201m in net debt as at end-1Q15.
- Even with the more conservative valuation, we estimate that KPTT’s shares are worth S$1.76 apiece, which still presents a 21% potential upside from here.
What You Should Do
- We maintain our Add call.
- KPTT is trading at 10.6x FY16 P/E, which is 1 s.d. below its historical mean. We see value at these levels and view the inefficient market pricing as a good buying opportunity.
(Jessalynn CHEN)
Source: http://research.itradecimb.com/
