Keppel T&T comprises of two operating business units: Logistics and Data Centres. The two are a study in contrasts!

As of 2015, the Logistics Division accounted for 70% of annual revenue and 5% of profits, while the Data Centre Division accounted for 30% of annual revenue and 70% of profits. This lopsided figure is in contrast to 2013 when the profits from the two business units was about equal. Incidentally, it was also the year Keppel aggressively expanded into logistics-parks in China.

Author’s note: This article was originally published in May’17 and updated in Dec’17, while retaining substantial portions of the original for context.

Admittedly the Data-Centre business has expanded since 2013 and its margins are higher than the logistics business; but its the warehousing projects under development in China that is to blame for the fall in profits of the Logistics Unit.

Keppel T&T’s logistics business in China

Keppel T&T is developing three large logistics parks in China, located at Tianjin, Luán and Jilin. It is the development of these projects whose completion has been repeatedly delayed, resulting in major cost escalation; which has been weighing on the Logistics Unit’s results.

The projects under development in China is the reason for steep fall in profits of the Logistics Unit. All signs point to an imminent turnaround but improvements to the bottom-line will be gradual.

At long last two of these projects, the Sino-Singapore Tianjin Eco City Distribution Center and Keppel Wanjiang Coldchain Logistics Park are complete and have commenced operations. Although it will take several months for the new logistics parks to stabilize, their completion removes a major overhang. The third project – the ambitious Jilin project will continue to cast a shadow for awhile longer.

Keppel T&T’s ports in China

Apart from the three logistics projects in China, Keppel T&T also owns three river ports at Lanshi, Sanshui, and Wuhu Sanshan.

Keppel invested in a stake in Lanshi in the nineties, and the port performed well until the city imposed strict traffic limits which has crimped its growth.  The other two ports offer better prospects. Keppel has invested in additional cranes at Samshui Port, while the logistic park at Lu’an Port is expected to benefit Wuhu Sanshan. On a broader note, Chinese ports in general are expected to benefit from the increase in global container traffic.

Keppel T&T’s investments in China coming good?

The completion of two large projects and the improvements from its ports, taken together with a business review that has been announced, suggest 2017 could be the turning point for Keppel’s operations in China. The country is Keppel T&T’s second biggest by assets and key to improving its performance.

Keppel T&T reviews its China Logistics Portfolio

On November 30, 2017 Keppel T&T announced a strategic review of its China logistics portfolio.

Keppel has appointed investment banking advisory firm Evercore Asia to assist with the strategic review. Evercore’s Singapore branch was recognized as the “Best Independent Advisory Firm in Asia 2016”.

About this update

When this article was published in May 2017, it was premised on an improved performance from Keppel T&Ts logistics assets in China, and the strategic review does not fundamentally alter the argument. There is little risk in investing in anticipation of when it all comes together for Keppel T&T’s investments in China.