Keppel Corporation - OCBC Investment 2018-07-20: A Gift On Its 50th Birthday

Keppel Corporation - OCBC Investment Research 2018-07-20: A Gift On Its 50th Birthday KEPPEL CORPORATION LIMITED SGX:BN4

Keppel Corporation - A Gift On Its 50th Birthday

  • Higher interim dividend S$0.10/share.
  • Special dividend of S$0.05/share.
  • Recovery in O&M to be incremental.

2Q18 results boosted by gains in property segment

  • Keppel Corporation delivered a 2% y-o-y drop in revenue to S$1.5b and a 44.4% increase in net profit to S$246.2m, such that 1H18 net profit accounted for 59% of our full year estimate. Earnings were exceptional items, results were generally within expectations.
  • On a half-year basis, net profit of S$583.6m was 38% higher compared to a year ago. Net gearing was healthy at 0.40x in 2Q18.

O&M recovery in the industry to be a gradual one

  • The O&M segment saw a net loss increase in the number of floating production projects awarded over the past year.
  • The recovery in the O&M business is expected to continue, but at an incremental pace.

Buttressed by property

  • Property remained the dominant contributor to net profit at S$603m in 1H18, followed by infrastructure at S$66m. Investments and O&M saw net losses of S$46m and S$40m in 1H18. 
  • With regards to the property cooling measures in Singapore, Keppel Corp’s diversified portfolio (land sales in Singapore < 10% of total) means that it is less affected by this development compared to more Singapore-focused developers.
  • Still, we lower our valuations for the property segment with the recent correction of Singapore and Hong Kong/China listed developers such that our fair value estimate drops to S$8.70.

Higher interim dividend plus special dividend

  • Meanwhile, Keppel Corp has declared an interim dividend of S$0.10/share for 1H18, higher than S$0.08/share in 1H17. In addition, as this year is Keppel Corp’s 50th anniversary, a special dividend of S$0.05/share has also been declared.
  • Assuming Keppel Corp pays a final dividend of S$0.14/share in 2H18 (same as 2H17), this translates to a dividend yield of 4.2%.
  • Do note that the ex-date for both the interim and special dividends is 25 Jul.

Low Pei Han CFA OCBC Investment Research | 2018-07-20
SGX Stock Analyst Report BUY Maintain BUY 8.70 Down 9.400