Highlights

Keppel Corporation - 1H21 a Decent Performance With Dividends the Highlight

Date: 30/07/2021

Source  :  UOB KayHian
Stock  :  Keppel Corp       Price Target  :  6.48      |      Price Call  :  BUY
        Last Price  :  6.74      |      Upside/Downside  :  -0.26 (3.86%)
 


  • Keppel Corp reported a reversal of fortunes in 1H21 with a better-than-expected net profit of S$300m vs a loss of S$537m in the year-ago period. Even excluding exceptional items and government grants, the company would have reported a solid net profit of S$280m.
  • The highlight of the results was Keppel Corp’s declaration of an interim dividend of S$0.12 vs S$0.03 in 1H20.
  • Maintain BUY rating on Keppel Corp. Target price raised to S$6.48 (previously S$6.37).

Keppel Corp's 1H21 Results

  • Strong 1H21 results despite challenges. Keppel Corp (SGX:BN4) reported a strong 1H21 with revenue rising 16% y-o-y to S$3.7b resulting in a net profit of S$300m vs a loss of S$537m in 1H20, which arose due to S$1b in impairments.
  • We note that excluding exceptional items and government grants, Keppel Corp’s 1H21 net profit of S$280m was even higher than 1H19’s net profit of S$149m. The better-than-expected performance in 1H21 was attributed to strong operational performance from the urban development, asset management and energy & environment business segments.
  • Positive surprise on dividends. Keppel Corp declared an interim dividend of S$0.12/share which is significantly higher than the S$0.03/share paid in 1H20 and even higher than 1H19’s interim dividend of S$0.08/share. We have upgraded our dividend estimate for 2021 to S$0.20/share (implying a 3.7% yield) and we expect consensus to upgrade as dividend estimated for this year were S$0.17/share.

Stock Impact

  • The urban development segment saw a 115% y-o-y increase in units sold, and a 177% y-o-y increase in revenue to S$2.5b. It was notable that all of Keppel Corp’s key markets contributed to the strong decline further as the company guided that it will look to achieve the higher end of the S$3-5b target by end-23.

Upgrading Keppel Corp's 2021 Earnings Forecast

  • We raised our 2021 earnings estimates for Keppel Corp by 32% to take into account the stronger-than-expected 1H21 performance of the urban development and asset management businesses.
  • We retain our BUY rating on Keppel Corp with an upgraded SOTP-based target price of S$6.48. Our SOTP-based valuation conservatively values KEP O&M unit at S$100m (since its end-20 book value was –S$659m) and thus a divestment in excess of this would be accretive to our target price.
  • Catalyst to Keppel Corp's Share Price:
    • Finalisation and disclosure of the valuation of the O&M assets that will be divested.
    • Announcement of partial or full sale of its Southeast Asian or Australian logistics business.

Source: UOB Kay Hian Research - 30 Jul 2021

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