Keppel Corporation - It’s All Coming Together

Date: 30/07/2021

Source  :  CIMB
Stock  :  Keppel Corp       Price Target  :  6.90      |      Price Call  :  BUY
        Last Price  :  6.73      |      Upside/Downside  :  +0.17 (2.53%)

  • We were positively surprised by the generous interim dividend of S$0.12 from Keppel Corp, the highest since 2015. We pencil in S$0.25 for FY21F, translating into 4.5% yield.
  • Keppel Corp's 1H21 net profit of S$300m (~10-fold increase h-o-h) was ~42% of our FY21F forecast; continued asset monetisation should lead to stronger 2H21F.
  • Short-term catalyst: divestment of O&M.
  • Medium-term catalyst: sizeable renewable project investments.
  • Retain ADD rating on Keppel Corp with higher SOP-based target price of S$6.90.

Enticing Dividend, More Asset Monetisation

  • Highlight of Keppel Corp (SGX:BN4)'s 1H21 results is the S$0.12 interim dividend (highest interim since 2015). We think management is likely to keep dividend high to reward shareholders. Final dividend is typically higher; hence, we pencil in S$0.13 for 2H21F, or total 66% payout for FY21F and higher than ~54% pre-Covid in 2018-19.
  • Keppel Corp's all business segments were profitable in 1H21 with the exception of infrastructure, which recorded net loss of S$269m due to S$318m of impairments from KrisEnergy’s liquidation. This is offset by divestment gains and Floatel restructuring gains of ~S$290m in total.
  • More asset recycling activities in 2H21F could lead to a stronger 2H. We estimate ~S$265m gains to be booked in 2H21F.

Clear Path for Asset Management

  • Combining Keppel Capital (KC) and contribution from Reits & Trust (previously separately reported under different business units) make it clearer to see Keppel Corp’s strength as an asset management company as well as more synergy reaped in resource allocation. With that, profit from asset management surged 439% h-o-h to S$117m on the back of stronger operating results from Keppel Capital and MTM from investments.
  • Keppel Capital raised total equity of over S$2bn year-to-date, which should help it sustain 1H21 profit of S$64m (+23% y-o-y).

Urban Development Strong Home Sales

  • Urban development recorded trend may differ depending on previous land cost/ownership and higher construction costs.

Renewable Angle Medium-term Catalyst; Reiterate ADD With Higher Target Price

  • Keppel Corp targets to grow renewable higher losses in O&M, offset by higher asset management, and infrastructure profit. Our SOP valuation is based on reorganised business segments, resulting in higher target price of S$6.90 for Keppel Corp.

Asset Monetisation

  • Recall that Keppel Corp announced in Sep 2020 its asset monetisation target of S$3bn-5bn by end- FY23F. As of Jul 2021, Keppel Corp has announced the monetisation of over S$2.3bn in assets since Oct 2020, with half of the transactions already completed.
  • Management expects to exceed S$3bn in monetisations, well in advance of its initial target by end-FY23F. We view this positively as this provides Keppel Corp with further dry powder, which should accelerate the group’s expansion into renewable energy assets.
  • As of end-1H21, Keppel Corp has unlocked S$854m in cash from its asset monetisations.

Source: CGS-CIMB Research - 30 Jul 2021

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