Keppel Corporation - OCBC Investment 2021-08-02: Growing Its Portfolio


Keppel Corporation - Growing Its Portfolio

Acquiring SPH’s non-media assets; a number of them can be monetised within next three years

  • Keppel Corporation (SGX:BN4) has announced a scheme of arrangement through its wholly-owned subsidiary, Keppel Pegasus Pte Ltd (the Offeror), to acquire all of the issued and paid-up ordinary shares in the capital of SPH (excluding treasury shares), with the intention to delist and privatise SPH, following the carve out of the SPH media assets. This acquisition should support Keppel’s plan to be an integrated business providing solutions for sustainable urbanisation, with an asset management arm to fund the group’s growth and provide a platform for capital recycling.
  • Importantly, we believe there are already plans in mind with regards to value unlocking as a number of SPH’s assets are relatively stabilised and can be monetised through the Keppel-managed REITs and business trust within the next three years.

Key terms and conditions of the scheme

  • Keppel Pegasus will offer an implied aggregate consideration of about S$2,237m, comprising cash of S$1,080m and 26% of Keppel REIT (SGX:K71U) units worth S$1,156m to SPH shareholders, who will be entitled to S$0.668 cash and 0.596 Keppel REIT unit for every SPH share held. SPH will concurrently distribute in specie ~45% of its stake in SPH REIT (SGX:SK6U) valued at S$1,157m to SPH shareholders, while retaining a 20% stake in SPH REIT.
  • The total consideration translates to an implied value of S$2.099/share, representing a premium of 39.9% over the closing price of SPH shares on 30 Mar 2021 (Strategic Review Announcement Date) and a 11.6% premium to the closing price on 30 Jul 2021 (day prior to this announcement).
  • Valuations offered by Keppel are fair, and while not a steal, there are synergies with Keppel’s businesses and Keppel could also look to enhance the assets before monetising them.

Synergies in the businesses

  • SPH’s non-media portfolio can complement and strengthen three out of four focus areas, namely Urban Development, Connectivity and Asset Management. These include SPH’s businesses and assets such as PBSA, senior living, stakes in SPH REIT and its REIT manager as well as other development assets.
  • The proposed transaction would also allow Keppel to consolidate its existing ownership of M1 and the Genting Lane data centre asset, which are currently jointly owned. The acquisition is estimated to be EPS accretive – about 6% for 1H21 on a pro-forma basis. Keppel Capital’s pro-forma AUM can potentially grow by ~27% from S$37b as at end 2020 to about S$47b following the acquisition.
  • Post transaction, Keppel will hold approximately 20% stakes in both Keppel REIT and SPH REIT and will continue to support the growth of both REITs.

Expected completion by Dec 2021

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2021-08-02
SGX Stock Analyst Report BUY MAINTAIN BUY 6.330 SAME 6.330