Keppel Earnings: Transformation Ongoing; Increasing Fair Value Estimate to SGD 8.80 From SGD 7.00

Keppel’s first-half 2023 net profit of SGD 3.6 billion (first-half 2022: SGD 498 million) was largely within our expectations. The strong earnings were mainly attributed to a SGD 3.3 billion gain from the disposal of offshore and marine business, and robust performance from the infrastructure and connectivity segments. We raise Keppel’s fair value estimate to SGD 8.80 from SGD 7.00 as we factor in the eventual monetization of the legacy rig assets on the back of the improving offshore rigs market. Recall that Keppel is holding SGD 4.3 billion of vendor notes issued by AssetCo, which owns the legacy rig assets. We think the shares are undervalued now and management continues to reward shareholders with the proposed special dividend in-specie of Keppel REIT (one Keppel REIT unit for every five Keppel shares held) to mark its 55th anniversary.