Keppel files over $3.6 billion net profit for first-half of 2023, highest in 55-year history

SINGAPORE - Keppel Corporation unveiled a record first-half net profit of over $3.6 billion, a seven-fold leap from $498 million recorded in the same period last year.

But this was thanks to a one-off disposal gain of some $3.3 billion from

the divestment of Keppel Offshore & Marine

. Keppel sold the business earlier this year for $4.5 billion to Sembcorp Marine, now called Seatrium.

Removing the one-off gain from this disposal, on a continuing operations basis, net profit rose 3 per cent to $445 million, from $434 million last year.

The company announced a first-half interim dividend of 15 cents per share, which is the same as the previous year. If added to its final cash dividend of 22 cents for the full year ending December 2022, the total payout for the calendar year 2023 would be 33 cents, translating into a yield of some 4.7 per cent based on Wednesday’s closing price of the stock, $6.99.

In addition to the cash dividend, Keppel is also proposing to reward shareholders with a special 55th anniversary dividend in-specie of one Keppel Reit share for every five Keppel shares held. Post-distribution, Keppel would remain a 37.1 per cent shareholder of Keppel Reit (KReit). KReit closed at 92 cents on Thursday.

The latest results show that Keppel’s three key business segments – infrastructure, real estate and connectivity – were profitable and helped the company deliver a total return on equity of 36.8 per cent and free cash flow of $732 million in the first half of 2023, compared with $127 million last year.

Infrastructure was the star performer, raking in a net profit of $291 million during the January to June period, more than double last year’s $139 million, thanks to higher net generation and margins from its integrated power business.

But real estate hit some turbulence, as net profit for the first half came in at $186 million, compared with the previous year’s $262 million, due to factors such as higher interest expenses, lower fair value gains and lower operating income. Analysts noted that the business was also weighed down by the weak property market in China, where Keppel has significant assets.

Connectivity – which encompasses its data centre, subsea cables and M1 telco business – saw profit rise about 12 per cent during the first half to $37 million, from $33 million a year earlier.

The company managed some $53.2 billion in funds and $65.6 billion in assets under management, largely in infrastructure and real estate.

Since its asset monetisation programme began in October 2020, Keppel has achieved $4.8 billion in cumulative asset monetisation, and expects to hit its target of $12 billion in cumulative asset monetisation by end-2026. It monetised $420 million of assets during the first six months of this year.

Chief executive officer Loh Chin Hua said the company remained focused on executing its strategy of transforming itself into a global asset manager and operator. He added that given the high interest rate environment, Keppel had managed to keep its borrowing costs stable.

As at end-June, about 65 per cent of its borrowings were on fixed rates, with an average interest cost of 3.53 per cent and weighted tenor of about three years. Adjusted net debt to Ebitda (earnings before interest, taxes, depreciation and amortisation) was 4.7 times – comparable to other global peers. Net gearing was 0.86 times.

While acknowledging the company had been cautious in its investment decisions during the first half amid market uncertainties, Mr Loh nevertheless expressed confidence in Keppel’s outlook.

“We believe that the second-half 2023 will present more interesting investment opportunities as the market adjusts to the new pricing paradigm, which better reflects the tighter credit markets, higher interest rates and more subdued economic growth outlook,” he said.

Analysts were sanguine on the company’s outlook as well.

Mr Nicholas Yon of Lim & Tan Securities noted that the company was steadily rebuilding its recurrent income stream, which had grown from $210 million during the first half of 2022 to $340 million this year, while transforming into an asset management company.

“There will come a day when we can perhaps use EV (economic value)/Ebitda to value the company,” he said, referring to the common yardstick to measure the performance of asset management firms.

“The fact that Keppel is monetising assets at this rate is a good thing for its shareholders.”

Indeed, Keppel delivered a total shareholder return of 118 per cent during the January 2022 to June 2023 period, compared with 9.62 per cent for the Straits Times Index.

If plans being put in place by Mr Loh and his team pan out, which seems likely, they would have successfully transformed what used to be an unwieldy conglomerate with disparate businesses into a sleek money-spinning asset management company within the next few years.