In the past 20 years, real estate like offices, malls, warehouses and hospitals have been securitised, and the proceeds recycled or distributed. However, two Singapore conglomerates are leading the way in monetising infrastructure, supporting their share prices. The chart pattern shows Keppel Corp is on a tear and moving inexorably upwards. The negative divergences developing with short-term RSI may cause a temporary blip in the uptrend, but it is unlikely to cause a significant correction. Any decline will likely meet with support at the 50- day moving average of $7. The 50- and 100-day moving averages drew together mid-August before continuing upwards. The immediate resistance is $8.63. Keppel traded above $12 before the global financial crisis. During the oil and gas rally from 2011 to 2014, Keppel tested $11 several times.
This year, Keppel’s revenue and earnings profile are markedly different from 2011 during the oil and gas upswing. At that time, Keppel was the world’s largest jack-up rig builder, a capital goods company. Now, Keppel is focused on green energy, not fossil fuels, despite Petrobras’s US$2.9 billion ($4.07 billion) contract for a Floating Production, Storage and Offloading vessel (FPSO).
Keppel is moving towards an asset-light model where the capital is recycled into new projects. In June, Keppel announced the proposed divestment of a 50% stake in Marina East Water (MEW), which owns the Keppel Marina East Desalination Plant, to Keppel Infrastructure Trust. The plant will continue to be operated by Keppel units.
During a results briefing in July, group CEO Loh Chin Hua said: “As at end-June 2020, the Group had $17.5 billion of monetisable assets, based on carrying value. These assets include our land bank carried at historical costs. Should we monetise these assets at a market value of about $20 billion? If we used $5 billion of the proceeds to reward shareholders through dividends and the repurchase of shares and pay down debt, we would have some $15 billion to re-invest for growth. Using our asset-light model and investing alongside investors in our chosen new growth initiatives, our AUM could grow to over $200 billion, assuming that a similar multiplier applies.”
Although Loh did not give a time frame — like CapitaLand Investment (CLI) — the potential regular fee income of $200 billion would be substantial. Keppel’s NAV as of June 30 was $6.68, and its NTA — which excludes goodwill and intangibles — was $5.80.
Regarding P/NTA, Keppel’s is at a similar multiple to CLI’s. Keppel is at 1.28x its NTA, and CLI’s P/NTA is 1.3x. The capital recycling strategy needs capital. During quantitative tightening and a rate hike cycle, capital gets more expensive, which could curtail short-term growth.
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Sembcorp Industries (SCI) has a proposed transaction to divest two power plants in India for $2.058 billion in the form of a deferred payment note. The buyer will pay SCI around $157 million a year — give or take — for 15 years using the cash flow from the power plants. At some point, SCI may start introducing trusts and funds to house its infrastructure projects, with SCI looking more like Keppel. Despite its uptrend, SCI’s chart pattern looks slightly weaker than Keppel’s. The volume surge on Sept 5 after a long uptrend followed by a minor black candle may point to a temporary retreat.
