Keppel: Strategic Restructure Should Help Unlock Value and Allow Cost Savings

We keep Keppel’s BN4 fair value estimate at SGD 7 following updates on its Vision 2030 plans. The immediate takeaway is that Keppel targets annual cost savings of SGD 60 million to SGD 70 million by 2026 from its restructure into an alternative real asset manager. We retain our earnings forecast for now but note that there is potential upside once the cost cuts are factored in pending the release of more details in Keppel’s first-half presentation. We also believe that the new structure should allow for greater earnings visibility, and this could unlock value for the group. We see Keppel as a buy presently, and this news should support its share price.

Key highlights of the updates include a new interim assets under management, or AUM, target of SGD 100 billion (SGD 50 billion as of end-2022) and cumulative asset monetization target of SGD 10 billion to SGD 12 billion (more than SGD 4.9 billion as of end-March 2023) by end-2026. With the aim to transform itself into a global alternative real asset manager from a conglomerate, the firm’s conglomerate structure will be simplified to form a horizontally integrated model comprising three platforms: fund management (focus on raising capital); investment (dealing with capital deployment decisions); and operating (integration of Keppel’s existing business units in infrastructure, real estate, and connectivity). The reorganization will be progressively implemented over the next 12-18 months. We expect the integration of business units into one operating platform should reap synergies, leading to the cost savings.

In our view, the plan to transform into a global alternative real asset manager makes sense as Keppel owns one unique benefit, which is the strong track record in the development and operation of real assets, such as renewables, clean energy, and decarbonization solutions. We think this differentiated model will serve the growing investor demand for alternative assets, which can provide a hedge against inflation.