DBS sharply upgrades Keppel, citing its capabilities as asset manager and developer
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DBS noted that Keppel had been transforming from an industrial conglomerate into a leading global asset manager and operator.
PHOTO: KEPPEL CORPORATION
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SINGAPORE – DBS Bank has upgraded Keppel Corporation’s stock price target to $8.30, noting its strength as a global asset manager with capabilities in real estate and green industrial space.
Analyst Pei Hwa cited Keppel’s strong engineering and construction roots and track record in capital management that positions its growth as a global asset manager, adding that the firm was trading at an “unwarranted discount” of well over 30 per cent to its closest peer, CapitaLand Investment.
The April 17 report by DBS Group Research noted that Keppel had been transforming from an industrial conglomerate into a leading global asset manager and operator, focusing on real estate, energy and environment, connectivity and alternative assets.
While remarkable progress has been made since the release of its Vision 2030 in 2020, the market has yet to reward Keppel for the transformation, it added.
“Keppel offers investors a promising earnings growth in sight,” the report said. “We project core earnings (excluding the O&M – offshore and marine – sale) growth of 12 per cent compound annual growth rate in the next two years, driven largely by assets under management (AUM) growth from $50 billion, as at the end of 2022, towards $80 billion.” The report also noted that Keppel aims to quadruple its AUM to $200 billion by 2030, which it said would add $4 a share to its current target price.
“Earnings quality has improved dramatically, with recurring income contribution to group profit having jumped from 25 to 40 per cent prior to Vision 2030 to around 60 per cent in 2022. The trend shall continue with concerted effort to pivot away from order book revenue to income from fees and from its portfolio assets (real estate, infrastructure and digital assets).”
Keppel responded to investor queries ahead of its annual general meeting on Friday by revealing last weekend that it delivered a total shareholder return of 49.3 per cent for 2022,
It said its total shareholder return reached 77.7 per cent over a 15-month period from January 2022 to the end of March 2023, following the completion of the O&M transaction and the distribution in specie of Sembcorp Marine shares to Keppel shareholders. In comparison, the STI’s total shareholder return for the same period was 9.2 per cent.
The company added that it has made significant progress in asset monetisation since October 2020, with more than $4.6 billion announced by Dec 31, 2022, and is on track to exceed the $5 billion target by the end of 2023.
DBS cited Keppel as an “undervalued gem” and stamped a “buy” call on the stock with a target of $8.30, implying a price-earnings multiple of 16 times and a price-book ratio of 1.3 times.
Keppel gained 8 cents to close trading at $6.27 on Thursday.
