Keppel Ltd: 1H24 results a mixed bag but fundamentals are intact
- 1H24 core net profit, excluding losses for legacy O&M assets, broadly in line, with support from infrastructure earnings
- Aermont contributed positively from 2Q24; FUM rose to SGD85bn; Lowered FY24-25F earnings by 4-7%
- Declared interim DPS of 15 Scts for 1H24; expect full year at 35 Scts or 5% yield
- Recent pullback a buying opportunity ahead of rate cuts; TP SGD9
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Losses for Legacy O&M assets should narrow, if not reverse. Of the SGD209m losses for Legacy O&M assets registered in 1H24, c.SGD67m was attributable to Seatrium’s price decline (from c.SGD2.40 as of end 2023 to SGD1.40 as of end Jun-24). Keppel has a remainder of 1.37bn shares or c.2% stake in Seatrium to encash. We find comfort that Seatrium’s share price has since recovered to above the SGD1.60 level. Floatel’s losses (c. SGD34m attributable to Keppel) was partly impacted by extra cost required to redeploy two vessels. Such losses should narrow or reverse in 2H with the booming chartering market. The remaining half of the losses was attributable to AssetCo Vendor Notes, which is a function of net interest and amortization charges. Management has stressed its priority to monetise these assets amidst robust demand.
Infrastructure earnings up 25% y/y to SGD363mn in 1H24, thanks to Integrated Power Operations, which contributed SGD317mn. Management has stressed that almost all customers are locked in on fixed or indexed electricity price plans, with >60% on more than a 3-year tenure, providing a cushion against power price fluctuations. Management is confident to sustain elevated earnings in view of the tight power market, high contracted capacity, continuous upgrade of plant efficiency as well as new supply coming online early 2026. Long-term solutions and services orderbook grew to SGD5.2bn (50% energy-related services; 42% waste & water operations; and 8% technology solutions), providing good recuring earnings for next 10-15 years.
Keppel now has a ~3.7GW renewable energy portfolio. Of which 70% is solar, 27% wind and 3% hydro.
Real Estate remains challenging. 1H24 net profit slid 31% y/y and 49% h/h to SGD129mn due to lower development profits and capital recycling activities. While divestment for China assets might not be compelling at the moment, there are still opportunities in brighter markets like Singapore and Vietnam.
Connectivity earnings more than doubled y/y to SGD76mn. The fully leased out Keppel Singapore DC 8 is on track to commence services for phase 1 in 3Q24. Floating Data-Centre is also pending final investment decision (FID) in 2H24 with a potential single hyperscaler customer.
Keppel’s FUM (Fund under Management) stood at SGD85bn (68% Real Estate, 21% Infrastructure, 11% Connectivity). AUM includes SGD12.6bn of assets on Keppel’s balance sheet that can be potentially converted into future FUM. Fundraising environment has certainly improved compared to last year. Investment brights spots are data-centres and other alternative assets such as education and senior living homes.
Aermont made a maiden quarter contribution in 2Q24. We understand that it contributed c.SGD30m EBITDA and ~SGD6m net profit (post amortisation)
Adj net debt to EBITDA inched up to 3.7x (from 3.3x as of end Dec-2023). Net gearing also increased slightly to above 0.9x.
Recurring income accounts for c.76% of group profit, underpinned by Infrastructure (87% of recurring income) and connectivity (c.13%). These income streams should be sustainable, lending support to dividend payout.
Stable interim dividend. Keppel declared interim dividend of 15 Scts (comparable to last year). Coupled with our final DPS projection of 20 Scts (vs 19 Scts for 2H23), Keppel could pay 35 Scts in total for FY24, implying 5% yield.
Fine-tuned earnings. We have lowered our FY24-25 earnings forecasts by 3-7%, factoring in higher interest expenses. We have also factored in losses for Legacy O&M assets under exceptional items to better illustrate performance of core businesses.
| FY Dec | 4Q2014 | 3Q2015 | 4Q2015 | % chg yoy | % chg qoq |
|---|---|---|---|---|---|
| Revenue | 3,925 | 2,440 | 2,480 | (36.8) | 1.6 |
| Cost of Goods Sold | (2,803) | (1,535) | (1,765) | (37.0) | 15.0 |
| Gross Profit | 1,122 | 904 | 714 | (36.3) | (21.0) |
| Other Oper. (Exp)/Inc | (196) | (534) | (384) | 95.7 | (28.1) |
| Operating Profit | 926 | 370 | 331 | (64.3) | (10.7) |
| Other Non Opg (Exp)/Inc | 3.77 | 7.01 | 1.98 | (47.3) | (71.7) |
| Associates & JV Inc | 255 | 101 | 251 | (1.4) | 147.8 |
| Net Interest (Exp)/Inc | (23.7) | (9.61) | (9.43) | 60.3 | 1.9 |
| Exceptional Gain/(Loss) | 0.00 | 0.00 | 0.00 | - | - |
| Pre-tax Profit | 1,161 | 469 | 575 | (50.5) | 22.5 |
| Tax | (136) | (97.0) | (138) | 1.3 | 42.5 |
| Minority Interest | (299) | (9.45) | (31.8) | 89.4 | 236.9 |
| Net Profit | 726 | 363 | 405 | (44.2) | 11.5 |
| Net profit bef Except. | 382 | 363 | 596 | 56.2 | 64.2 |
| EBITDA | 1,254 | 534 | 646 | (48.5) | 20.9 |
| Margins | |||||
| Gross Margins (%) | 28.6 | 37.1 | 28.8 | ||
| Opg Profit Margins (%) | 23.6 | 15.2 | 13.3 | ||
| Net Profit Margins (%) | 18.5 | 14.9 | 16.3 |
Source of all data: Company, DBS
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