SINGAPORE (Oct 21): CIMB has downgraded Keppel Telecommunications & Transportation (Keppel T&T) to "hold" from "add" with a lower target price of $1.77 from $1.83 previously.

The research house has cut the stock’s FY16-18F earnings per share (EPS) forecasts by 2-8% following the stock’s recent share price run, as well as the announcement of the company’s 3Q earnings on Wednesday.

(See also: <a href="http://www.theedgemarkets.com.sg/sg/article/keppel-tts-3q-earnings-more-quadruple-699-mil-announces-46-mil-logistics-acquisition" target="_blank">Keppel T&T's 3Q earnings more than quadruple to $69.9 mil; announces $4.6 mil logistics acquisition</a>)

“At 13x CY17 P/E, we think the positives are largely priced in. If no special DPS is declared upon divestment of SGP 3 in 4Q, it could be negative news to the market,” explains analyst Jessalynn Chen.

Although Keppel T&T posted earnings of $69.9 million for 3Q16, an increase of 356.5% compared to earnings of $15.3 million in the same period last year, Chen points out this was because the company recognised several one-off gains during the quarter, including the disposal of its 50% stake in Keppel DC REIT Management.

See also: <a class='gtm_see_also_1_inread' style='text-decoration: underline;' href='/capital/brokers-calls/dbs-says-it-remains-buyers-digital-core-reit-after-further-downside-price?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>DBS says it remains buyers of Digital Core REIT after further downside in price</a>

Stripping out such items, the company’s 3Q core net profit came in at $14.1 million, which reflects a 25% y-o-y decline mainly attributed a loss of 50% in REIT management fees, she adds.

“We also adjust for lower DC earnings in 4Q to factor in the sale of SGP 3 to KDCREIT in Dec,” says Chen.

Keppel T&T, subsidiary of Keppel Corp, intends to sell a 90% stake in SGP 3 for $202.5 million in Dec, which values the DC at $225 million. Chen calculates that net proceeds would amount to $121.1 million and will be used for investments and working capital, while a gain of $1.065 million will be recognised in 4Q.

“Upside/downside risks could come from faster/slower pace of DC asset recycling,” adds the analyst.

As at 3.40pm, shares of Keppel T&T are trading 0.85% lower at $1.755.

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