Company Reports

Keppel’s first-half 2024 net profit was dragged down by its legacy offshore and marine assets, resulting in a 31.6% year-on-year decline to SGD 304 million. The losses from the legacy assets relate to the fair value losses of its Seatrium shares, the Asset Co vendor notes, and Keppel’s stakes in Floatel and Dyna-Mac. Excluding these, net profit rose 7% year on year, driven by higher contributions from its infrastructure and connectivity segments, partly offset by its real estate segment. We cut our 2024 earnings per share estimate by 14% after factoring in losses from its legacy assets and have adjusted our 2025-26 EPS estimates lower by 3%-5% after reducing our forecasts of share of profits from associated companies and joint ventures.

Singapore-based Keppel is an alternative asset manager and operator with SGD 68 billion of assets under management as of end-2023. Currently, the group generates most of its income from its infrastructure segment, where it invests and operates in a portfolio of infrastructure assets such as renewable energy assets, natural gas power plants, and water and wastewater treatment plants. The group also has a real estate segment where it operates mainly in Singapore, China, Vietnam, Indonesia, the US and Europe. Under this segment, the group builds and sells residential units, and invests in income-producing investment properties for rental income. As for its connectivity division, the group operates data centers and owns M1, a telecommunications company in Singapore. Lastly, the group manages listed and unlisted investment funds spanning all three segments for management fees.

We transfer coverage of Keppel, with a no-moat rating and raising our fair value estimate to SGD 8.60 per share from SGD 8.40, after tweaking our operating income margin slightly higher. Based on the current price, we think the shares are undervalued and expect positive developments in its asset monetization plans and growth of its fund management platform to drive share price performance.

Singapore-based Keppel is an alternative asset manager and operator with SGD 68 billion of assets under management as of end-2023. Currently, the group generates most of its income from its infrastructure segment, where it invests and operates in a portfolio of infrastructure assets such as renewable energy assets, natural gas power plants, and water and wastewater treatment plants. The group also has a real estate segment where it operates mainly in Singapore, China, Vietnam, Indonesia, the US and Europe. Under this segment, the group builds and sells residential units, and invests in income-producing investment properties for rental income. As for its connectivity division, the group operates data centers and owns M1, a telecommunications company in Singapore. Lastly, the group manages listed and unlisted investment funds spanning all three segments for management fees.

Keppel is a Singapore government-linked conglomerate previously best known as the leading semi-submersible rig builder for the offshore industry. However, the downturn in the energy industry has led to a change in Keppel’s strategy. We think the privatizations of Keppel Land in 2015 and M1 in 2019 were timely and help the firm to boost cash flow to offset its struggling offshore and marine, or O&M, segment. Keppel’s future business will be less dependent on the O&M business following the completion of the combination of Keppel O&M with Sembcorp Marine in February 2023.

Keppel’s 2023 net profit of SGD 4.1 billion (SGD 927 million in 2022) was largely in line with our expectations. The strong earnings were mainly due to a SGD 3.3 billion gain from the divestment of its offshore and marine business. We cut Keppel’s fair value estimate to SGD 8.40 from SGD 8.80 after rolling forward our estimates and considering the higher net debt and completion of the distribution in specie of Keppel REIT. We believe Keppel remains undervalued currently and better-than-expected progress in its asset monetization plans will be key to driving share price performance.

We are positive about Keppel’s proposal to acquire a leading asset manager in Europe, Aermont Capital. In our view, this is in line with its strategy to transform into a global asset manager and focus on recurring income. We keep our fair value estimate at SGD 8.80 and leave our earnings estimates unchanged, pending the completion of the deal. While we do not expect a significant contribution from Aermont in the near term, we are constructive on its long-term potential given the opportunities to introduce new fund products. We think Keppel is attractive currently and positive development on its asset monetization plans could help to drive share price performance.

We keep Keppel’s fair value estimate at SGD 8.80 following its in-line third-quarter 2023 business update. While no detailed earnings numbers are given, cumulative nine months' revenue of SGD 5.3 billion was up 5% year on year, making up 74% of our full-year forecast. Net profit from continuing operations was higher year on year, underpinned by a stronger contribution from infrastructure and connectivity segments. We believe Keppel remains undervalued currently and positive development on its asset monetization plans could continue to drive share price performance.

Keppel is a Singapore government-linked conglomerate previously best known as the leading semi-submersible rig builder for the offshore industry. However, the downturn in the energy industry has led to a change in Keppel’s strategy. We think the privatizations of Keppel Land in 2015 and M1 in 2019 were timely and help the firm to boost cash flow to offset its struggling offshore and marine, or O&M, segment. Keppel’s future business will be less dependent on the O&M business following the completion of the combination of Keppel O&M with Sembcorp Marine in February 2023.

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.

We keep Keppel’s fair value estimate at SGD 7 following updates on its Vision 2030 plans. The immediate takeaway is that Keppel targets annual cost savings of SGD 60 million to SGD 70 million by 2026 from its restructure into an alternative real asset manager. We retain our earnings forecast for now but note that there is potential upside once the cost cuts are factored in pending the release of more details in Keppel’s first-half presentation. We also believe that the new structure should allow for greater earnings visibility, and this could unlock value for the group. We see Keppel as a buy presently, and this news should support its share price.

We see no major surprise in no-moat Keppel’s first-quarter 2023 business update, and keep our fair value estimate of SGD 7.00. While no detailed financial numbers are given, first-quarter net profit (excluding the SGD 3.3-billion disposal gain from the combination of Keppel Offshore & Marine and Sembcorp Marine) improved slightly year on year, due to better performance of the energy and environment, urban development, and connectivity segments. We believe Keppel remains undervalued, and a positive share price catalyst could come from the update of its transformation plans (including a new interim asset monetization target) in May 2023.

We cut Keppel’s fair value estimate to SGD 7.00 from SGD 9.40 following the distribution in specie of the Sembcorp Marine, or Sembmarine, shares to its shareholders. Keppel still retains about a 5% stake in Sembmarine, but it is held under a separate entity for the purposes of funding potential contingent liabilities arising from the merger of Keppel offshore and marine, or Keppel O&M, with Sembmarine. We estimate Keppel will recognize more than SGD 3 billion disposal gain from the merger. We believe Keppel is undervalued now, underpinned by its diversified business while its Vision 2030 strategy will continue to unlock the value of its assets.

Keppel is a Singapore government-linked conglomerate previously best known as the leading semi-submersible rig builder for the offshore industry. However, the downturn in the energy industry has led to a change in Keppel’s strategy. We think the privatizations of Keppel Land in 2015 and M1 in 2019 were timely and help the firm to boost cash flow to offset its struggling offshore and marine, or O&M, segment. Keppel’s future business will be less dependent on the O&M business following the completion of the combination of Keppel O&M with Sembcorp Marine in February 2023.

We are placing Keppel Corp under review pending the completion of the proposed combination between Sembcorp Marine and Keppel Offshore & Marine, which is expected to be completed by Feb. 28, 2023. We will provide further updates following the event.

We keep Keppel’s fair value estimate at SGD 9.40 following its in-line 2022 results. We believe Keppel is attractive now, underpinned by its diversified business while its Vision 2030 strategy will continue to unlock value of its assets. Sembcorp Marine, or Sembmarine, will hold an extraordinary general meeting on Feb. 16, 2023, to vote on its proposed combination with Keppel Offshore and Marine, or Keppel O&M, and we expect the deal to be approved by shareholders. Hence, we move Sembmarine’s Morningstar Uncertainty Rating to High from Very High, as we think the combined entity will enhance Sembmarine’s future earnings given the larger scale and stronger order book. Sembmarine expects the transaction to be completed by Feb. 28, 2023, while Keppel will distribute 19.1 Sembmarine shares to its shareholders for every one Keppel share they hold subsequently.

Keppel is a Singapore government-linked conglomerate previously best known as the leading semi-submersible rig builder for the offshore industry. However, the downturn in the energy industry has led to a change in Keppel’s strategy. We think the privatizations of Keppel Land in 2015 and M1 in 2019 were timely and help the firm to boost cash flow to offset its struggling offshore and marine, or O&M, segment. Keppel is currently in the final stages of executing the proposed combination of Keppel O&M with Sembcorp Marine and its future business will be less dependent on the O&M business.

We raise fair value estimates of Keppel and Sembcorp Marine, or Sembmarine, to SGD 9.40 (from SGD 7.30) and SGD 0.12 (from SGD 0.10), respectively, after incorporating the stronger order wins and the latest development on the proposed offshore and marine, or O&M, transactions. There was no major surprise in Keppel’s third-quarter 2022 business update, which did not provide detailed earnings numbers. Cumulative nine-month revenue was up 24% year on year, within our expectation, while net profit improved year on year with stronger performance from the energy and environment and asset management segments. Meanwhile, we think the revised terms on the proposed combination of Keppel O&M, or KOM, and Sembmarine have improved the deal certainty and we expect it to be approved by respective shareholders. Hence, we raised Keppel’s fair value estimate to factor in its eventual 54% stake in Sembmarine, and think the shares are attractive currently. We believe Sembmarine is fairly valued now following the more than 50% share price run-up year to date.

Keppel is a Singapore government-linked conglomerate previously best known as the leading semi-submersible rig builder for the offshore industry. However, the downturn in the energy industry has led to a change in Keppel’s strategy. We think the privatizations of Keppel Land in 2015 and M1 in 2019 were timely and help the firm to boost cash flow to offset its struggling offshore & marine, or O&M, segment. Keppel is currently working on a strategic review of its O&M business and we believe investors will view this positively.

Keppel’s first-half 2022 net profit of SGD 498 million is largely within our expectations, with weaker property earnings offset by stronger infrastructure and offshore and marine, or O&M, contributions. We keep our fair value estimate at SGD 7.30. While we like Keppel’s diversified business and its strategy to unlock asset values, we believe these have been largely priced-in. First-half 2022 dividend per share increased by 25% year on year to SGD 0.15 while the SGD 500 million share buyback program is 73% utilized. We expect the firm to continue to engage in shareholder-friendly actions.