Keppel Corporation - OCBC Investment 2022-07-29: In The Midst Of Unlocking Value


Keppel Corporation - In The Midst Of Unlocking Value

  • Keppel Corp's share price has been an outperformer so far this year (based on 28 July 2022 close).
  • Positive dividend surprise with 1H22 dividend at S$0.15 per share.
  • Asset monetisation programme remains on track.

Significant outperformer so far this year

  • Since the start of the year, Keppel Corporation (SGX:BN4) has delivered total returns of 36% (based on 28 July 2022 close), significantly outperforming the broader Straits Times Index which has returned 5% over the same period.
  • Besides the strong earnings announcement for FY21, during which Keppel Corp reported net profit of S$1.02b (highest achieved in the past 6 years since the O&M downturn), the sector has been buoyed by better industry fundamentals.
  • Keppel Corp’s 1H22 earnings release yesterday was also encouraging, with the group reporting 1H22 PATMI of S$498m, forming about 57% of our full year forecast.
  • Keppel Corp's 1H22 dividend was S$0.15 per share, higher than expectations. As Keppel Corp's final dividend per share is normally higher than interim, we increase our FY22F dividend forecast from S$0.26 to S$0.31/share.

Asset monetisation strategy remains on track

  • Keppel Corp’s asset monetisation strategy of more than S$5b remains unchanged, and this would likely support the group’s dividend payouts. Year-to-date, Keppel Corp has monetised assets worth about S$710m, bringing the cumulative amount to about S$3.6b since the asset monetization programme was started in 3Q20.

Updates on China property and asset management business

  • As expected, there were weaker home sales in China, with the 1H22 number down 69% y-o-y. However, management guided that average selling prices held steady in some cities. Anticipating that borders may reopen in FY23, Keppel Corp has set a pipeline to launch 2664 units in FY23.
  • Meanwhile, Keppel Corp’s asset management segment recorded S$155m in 1H22 net profit, reflecting 32% y-o-y growth.

EGMs for proposed combination in 4Q22

  • One of the focus for Keppel Corp remains on the proposed combination of the offshore marine business.
  • Recall that Keppel Corp and Sembcorp Marine (SGX:S51) have signed definitive agreements for the proposed combination of Keppel O&M and Sembcorp Marine which will become wholly-owned subsidiaries of the combined entity. Concurrently, Keppel O&M will sell its legacy rigs and associated receivables to an asset company that will be 10% owned by Keppel Corp and 90% owned by other investors, and transfer other out-of-scope assets to Keppel Corp. Keppel Corp and its shareholders would own 56% of the combined entity and Sembcorp Marine shareholders would own 44% on completion. This takes into account the respective capital structures of the two companies, and the S$500m cash that Keppel O&M will pay to Keppel Corp and other adjustments. Keppel Corp will then distribute in specie 46% of the combined entity shares to Keppel Corp’s shareholders and retain a 10% stake, which will be placed in a segregated account. Following this distribution in specie, Temasek will hold 33.5% and be the largest shareholder of the combined entity.
  • According to management, the proposed transactions, on a pro forma basis, would allow Keppel Corp to realise about S$9.42b in value comprising
    1. S$4.87b which is 56% equity share in the combined entity,
    2. extraction of S$500m in cash as part of Keppel O&M’s pre-combination restructuring, and
    3. S$4.05b comprising vendor notes, perpetual securities and a 10% stake in the asset company from the sale of Keppel O&M’s legacy rigs and associated receivables to asset company.
  • As mentioned in our identity to reflect its focus on offshore renewables, new energy and cleaner solutions in the O&M sector.
  • See

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2022-07-29
SGX Stock Analyst Report BUY MAINTAIN BUY 8.780 SAME 8.780