Keppel Corporation: To be a True Conglomerate

Date: 08/06/2017

Source  :  OCBC
Stock  :  Keppel Corp       Price Target  :  7.36      |      Price Call  :  BUY
        Last Price  :  6.76      |      Upside/Downside  :  +0.60 (8.88%)

  • Harnessing synergies
  • Well-positioned to ride property upturn
  • Asset management for various real assets

Multi-business Group

Though almost synonymous with Offshore & Marine, Keppel Corporation is a multi-business group with different verticals in the same line of providing solutions for sustainable urbanisation such as energy, infrastructure, clean environments, high quality homes and offices. In FY16, property contributed S$620m in net profit (79%), followed by infrastructure at S$99m (13%), investments at S$36m and offshore & marine at S$29m.

Property Sales Still Healthy; Well-positioned to Ride on Upturn

The general outlook for property markets in Asia remains positive in the long term, driven by continuing urbanisation. Keppel’s core markets are Singapore, China, as well as Vietnam and Indonesia. It also has a foothold in Myanmar. In China, Keppel is focused on the five key cities of Shanghai, Beijing, Tianjin, Chengdu and Wuxi. Despite property cooling measures in selected cities in China, the group sold over 3,800 units and handed over some 3,480 units in 2016.

Sales in China contributed to about 65% of the total 5,720 residential units that Keppel Land sold in 2016. In Singapore, Keppel sold 380 units, double the 190 units in 2015. With its landbank of 1.3m sq ft in prime locations, Keppel is wellpositioned to ride on a recovery in the residential market when it occurs.

Keppel’s residential landbank in Singapore and overseas total 8.4m sm of GFA, translating to a pipeline of about 66,000 homes, mostly in China and Vietnam. The group has also diversified into other segments such as office, retail and lifestyle developments overseas.

Collaboration Across Verticals

In the infrastructure segment, Keppel is involved in energy and environmental infrastructure (Keppel Infrastructure), as well as data centres and logistics (Keppel T&T). With Keppel Capital, the group is also able to connect investors with high-grade real assets such as data centres, power and desalination plants, LNG vessels and FPSOs.

Co-investments also allow the group to grow faster without putting a strain on its balance sheet. As such, we expect to see the asset management business to gain increasing prominence in the group. Maintain BUY with fair value estimate of S$7.36 on Keppel Corp.

Source: OCBC Research - 8 Jun 2017

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Keppel Corp 6.76 +0.10 (1.50%) 1,322,700 

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