Keppel Earnings: Transformation Ongoing; Increasing Fair Value Estimate to SGD 8.80 From SGD 7.00

Keppel’s BN4 first-half 2023 net profit of SGD 3.6 billion (first-half 2022: SGD 498 million) was largely within our expectations. The strong earnings were mainly attributed to a SGD 3.3 billion gain from the disposal of offshore and marine business, and robust performance from the infrastructure and connectivity segments. We raise Keppel’s fair value estimate to SGD 8.80 from SGD 7.00 as we factor in the eventual monetization of the legacy rig assets on the back of the improving offshore rigs market. Recall that Keppel is holding SGD 4.3 billion of vendor notes issued by AssetCo, which owns the legacy rig assets. We think the shares are undervalued now and management continues to reward shareholders with the proposed special dividend in-specie of Keppel REIT (one Keppel REIT unit for every five Keppel shares held) to mark its 55th anniversary.

In addition to the results, we think key highlights include the progress of the asset monetization plan and the ongoing transformation into an alternative real asset manager. Keppel’s asset monetization has already exceeded SGD 4.8 billion since October 2020 and the firm aims to reach between SGD 10 billion and SGD 12 billion by 2026, and SGD 17.5 billion eventually. We are positive on this as the proceeds can be used to invest in new opportunities and reward shareholders.

Keppel’s fee-bearing funds under management increased to SGD 53.2 billion as of end-June 2023 from SGD 50 billion as of end-2022. First-half 2023 asset management fees translate into an annualized fee/FUM ratio of 50 basis points, in line with leading industry peers. We think the firm’s goal to achieve FUM of SGD 100 billion by 2026, and SGD 200 billion by 2030 will continue to contribute to Keppel’s recurring income. In particular, the current FUM includes about SGD 10 billion in dry powder, which can be used for new investments.