Keppel Corporation’s 2HFY2021 results blew past expectations, says PhillipCapital Research analyst Terence Chua. FY2021 net profit of $1.01 billion was ahead of his forecasts by 63.7% and a reversal of the $508 million loss in FY2020.
The surprise came from fair value gains from its investments in new technology and start-ups, says Chua. In a Jan 31 note, Chua is maintaining “buy” on Keppel Corporation with an unchanged target price of $7.07, which represents an upside of 31.2%.
The group also announced on Jan 27 a $500 million share buyback program and 21 cents final dividend, bringing full year dividend to 33 cents.
Shares from the buyback will be held as treasury shares to be used in part for the annual vesting of employee share plans, and also as possible currency for future M&A activities. “We view the share buyback program positively as current share price is below its net asset value of $6.41.”
‘Lack of clarity’ on SPH
That said, Chua noted a lack of clarity on the roadmap for SPH’s acquisition. “We were a little disappointed on the lack of clarity on the timeline for its acquisition of SPH. The absence of a clear timeline in our view is an overhang on the stock.”
See also: Keppel Corp reverses from loss, reports net profit of $1.02 bil in FY2021
The next catalyst investors should look out for is the proposed merger of Keppel Offshore and Marine (KOM) and Sembmarine (SMM). The management is working towards signing definitive agreements by end 1Q2022.
The outlook of the industry is also improving, underpinned by firmer oil prices, writes Chua. “Modern jackup rig utilisation and day rates are expected to improve as oil prices continue to rise. We expect KOM’s legacy rigs to be substantially monetised in the next three to five years on the back of the improving industry outlook. While nothing has been firmed up, we view the developments positively as it provides better clarity on the fate of its O&M unit.”
With the overhang removed, along with the planned divestment of its logistics unit, we believe Keppel will be re-rated.
See also: Keppel Corp announces $500 mil share buyback
‘All stars are aligned’
Re-rating is indeed in sight, writes DBS Group Research analyst Ho Pei Hwa, as “all stars are aligned” for Keppel.
In a Jan 28 note, Ho is maintaining “buy” on Keppel, with a raised target price of $6.90 from $6.20 previously. The new target price represents a 30% upside.
Current valuation is undemanding at 0.8 times price-to-book ratio (PB), writes Ho. “The strong showing for FY2021 is evidence of operational improvements across segments that should sustain into FY2022. A generous dividend and share buyback exercise lend further support to the share price.”
Keppel’s yard merger is “widely anticipated”, says Ho, as it would streamline Keppel’s operations to focus on its asset-light businesses and sustainable solutions.
Keppel is also accelerating its clean energy and decarbonisation drive, notes Ho. “Keppel Is an ESG leader in corporate governance, safety, human capital management, and clean energy. It has gained traction in renewable/gas solutions that now contribute about 40% to KOM’s orderbook. Moving up the renewable value chain, Keppel will operate its first solar farm with 500MW capacity in 2023 and aims to raise its renewable energy portfolio to 7GW by 2030.”
As for SPH, the ball is now in their court, writes Ho. “Keppel has done all they could on their end. It now awaits SPH’s call for an EGM to vote for the proposed Scheme of Arrangement.”
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In December 2021, Keppel’s proposed acquisition of the Singapore Press Holdings (SPH) portfolio was approved by Keppel’s shareholders at the company’s EGM. The proposed acquisition is now pending the scheme meeting to be called by SPH, where Keppel's scheme will be voted on by SPH’s shareholders.
CEO of Keppel Corporation Loh Chin Hua was asked twice about the timeline of the proposed acquisition at a briefing on Jan 27. “We have already cleared all the conditions that we needed to clear and we're looking forward for the scheme meeting to be arranged by SPH for its shareholders to vote.”
Loh added: “I can't really share much more than what I've said. I think from Keppel's side, we have completed all that we are required to do, including getting our [shareholders'] approval. So, all the conditions on our side have been cleared. I think it is really up to SPH now to call the scheme meeting for its shareholders to vote, and we would like to see that done, obviously, as quickly as possible.”
As at 10.11am, shares in Keppel Corp are trading 7 cents higher, or 1.25% up, at $5.68. Shares in Keppel Corp closed at $5.29 prior to the FY2021 results on Jan 27.
Photo: Keppel
