Continue reading this on our app for a better experience

Open in App
Floating Button
Home Capital Broker's Calls

DBS reinstates coverage on Keppel Corp, the 'undervalued gem'

The Edge Singapore
The Edge Singapore • 2 min read
DBS reinstates coverage on Keppel Corp, the 'undervalued gem'
Photo: Keppel Corp
Font Resizer
Share to Whatsapp
Share to Facebook
Share to LinkedIn
Scroll to top
Follow us on Facebook and join our Telegram channel for the latest updates.

DBS Group Research has reinstated coverage on Keppel Corporation BN4

with a "buy" call and bullish target price of $8.30, up some 40% from current levels.

"Keppel Corp offers investors a unique and unrivalled proposition as a global asset manager with developer and operator capabilities in real estate and green industrial space," writes analyst Ho Pei Hwa in her April; 16 note.

"We believe that Keppel’s strong engineering/construction roots and track record in capital management positions in its emergence and growth as a global asset manager," she adds, calling the stock an "undervalued gem".

Ho projects Keppel's earnings to grow at a CAGR of 12% over the next two years, led by its asset management business which generates a steady, recurring stream of fee income.

As at end of 2022, the company has an AUM of around $50 billion and aims to grow this base to $200 billion by 2030.

In addition, with the pandemic largely over, Keppel's property and land sales in China and Vietnam is set to recover.

See also: Test debug host entity

The way Ho sees it, Keppel's earnings quality has improved "dramatically", with recurring income now at around 40%, up from 25% previously, before the company embarked on its new strategy.

"The trend shall continue with concerted effort to pivot away from orderbook revenue to income from fees and from its portfolio assets, such as real estate, infrastructure and digital assets," adds Ho.

For now, its ROE is around 9%, which falls short relative to its 15% target.

See also: Maybank downgrades ComfortDelGro in contrarian call over Addison Lee acquisition worries

"We look forward to AUM growth and turnaround of property business to drive returns towards its target in the medium term," notes Ho.

Her $8.30 target price, derived using a sum of the parts methodology, is based on 18x FY23 asset management earnings; a 40% discount to the RNAV of its property business, and 9x earnings of its infrastructure and connectivity business segment.

Keppel is now trading at just below its book value, while CapitaLand Investments, with a somewhat similar business of building a business via an asset management platform, can fetch 1.3x.

Ho believes that this "unwarranted" gap, despite "superior ROE and dividend yield as well as similar growth, will likely narrow."

Highlights

Re test Testing QA Spotlight
1000th issue

Re test Testing QA Spotlight

Get the latest news updates in your mailbox
Never miss out on important financial news and get daily updates today
×
The Edge Singapore
Download The Edge Singapore App
Google playApple store play
Keep updated
Follow our social media
© 2024 The Edge Publishing Pte Ltd. All rights reserved.