Keppel kept at 'hold' as analysts await clarity on transaction in M1 with SPH

Keppel kept at 'hold' as analysts await clarity on transaction in M1 with SPH

By: 
Samantha Chiew
24/09/18, 11:53 am

SINGAPORE (Sept 24): Keppel Corporation (KEP) announced that it is considering a transaction involving its indirect interest in M1, together with Singapore Press Holdings (SPH).

Keppel is also considering a transaction of its interest in Keppel Telecommunications & Transportation (KTT).

Concurrently, Singapore Press Holdings (SPH) has also announced that it has been approached by Keppel to participate in a possible transaction involving its indirect interest in M1.

See: Keppel T&T, SPH mulling potential transaction involving respective M1 stakes

Keppel owns 19.3% of M1, via Keppel T&T, while SPH owns 13.5% of M1. There is no announcement from Axiata Group, who owns 28.7% of M1.

Both parties have cautioned that there is no certainty or assurance that any transaction will occur.

Nonetheless, UOB Kay Hian is maintaining its “hold” call on Keppel with a target price of $7.37.

In a Monday report, analyst Foo Zhiwei says, “A privatisation of KTT would be beneficial for KEP in the longer-term. We are not entirely surprised by this. Should that be the case, it would be beneficial to KEP (in the longer run) given the strong pipeline of datacentre projects that KTT is likely to take on in the foreseeable future.”

KEP will then be able to acquire KTT at attractive levels and benefit wholly in the future from the potential spin-off the Logistics assets and upside from the Datacentre business.

Shares in SPH has increased about 5-6% from the intra-day lows since mid-Sept.

“We believe this to be market pricing in the impact of a potential M1 transaction, rather than the UK student accommodation deal which we are cautious on,” says Foo.

However, only shares in SPH reacted, rather than KTT’s.

According to the analyst, this suggests that the market was not expecting this transaction, so the run up in SPH’s share price was a reaction towards the student accommodation acquisition, or the market might have expected the transaction to only involve SPH and M1, but not KTT.

On the other hand, considering that KEP mentioned it is in talks with SPH to consider a transaction on M1, this may suggest a transaction between just both.

“Should such a transaction occur, it would trigger a general offer (KTT holds a 19.3% stake, SPH holds a 13.5% stake, for a total of 32.8% in aggregate), which we view as a short-term negative for KEP,” says Foo.

Until more clarity emerges, the analyst’s view on KEP does not change.

“Should such a transaction occur, it would trigger a general offer (KTT holds a 19.3% stake, SPH holds a 13.5% stake, for a total of 32.8% in aggregate), which we view as a short-term negative for KEP,” says Foo.

Furthermore, on the back of this potential transaction, the research house is maintaining an “overweight” recommendation on the Telecommunications Sector.

In a Monday report analyst Jonathan Koh says, “We do not think that the transaction would lead to an early consolidation of the Telco sector from four to three players. StarHub and TPG Telecom have not made any announcements (we would rule out Singtel being an acquirer).”

However, the bid for M1 by a third-party investor would generate “buy” interest, reminding investors that the Telco sector is oversold and value has emerged.

As at 11.48am, shares in Keppel are trading flat at $7.03, SPH shares at $2.82, and M1 shares at $1.63.

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