Keppel posts strong FY22 earnings, says distribution of Sembmarine shares won’t hugely impact asset value

SINGAPORE - The distribution in specie of Sembcorp Marine shares will not have a major impact on Keppel Corps’ net tangible asset (NTA) per share.

Keppel Corp’s chief executive Loh Chin Hua explained that if the proposed combination of Keppel Offshore & Marine and Sembmarine had been completed at end-2022, it would have resulted in a pro forma disposal gain of about $3.4 billion, or $1.94 per Keppel share in FY2022.

On the same pro forma basis, Keppel Corp’s NTA per share would have increased from the reported $5.51 to $7.56 post transaction. But following the distribution in specie – which has an implied value of 12.2 cents per Keppel Corp share – the latter’s pro forma NTA would be reduced from $7.56 to $5.23 per share.

Mr Loh said this is just marginally lower than its reported NTA of $5.51 at the end of FY2022.

“With the completion of the merger, we will make a significant gain in NTA. Then we will be distributing most of the shares. So the NTA will fall back. Unlike a distribution of our own portfolio, which would have led to NTA falling, the value of the distribution would be supported by the value booked when we get the Sembmarine shares,” he added.

Under the terms of the

merger of Sembmarine with Keppel-owned Keppel O&M,

Keppel Corp will receive 36.85 billion shares of the enlarged Sembmarine representing 54 per cent in the enlarged entity. Of these, Keppel will distribute in-specie shares representing 49 per cent of the enlarged entity to its shareholders, with the remaining 5 per cent retained in a segregated account. For each share of Keppel Corp held, shareholders will receive 19.1 shares of Sembmarine.

Analysts noted that while Keppel Corp‘s market cap will drop slightly following the combination, the stock will have enough weightage to remain in the FTSE All-World Index and the Straits Times Index.

Mr Loh said the disposal of Keppel O&M would accelerate the Keppel conglomerate’s transformation to a global asset manager and operator, with strong capabilities in energy and environment, urban development and connectivity through its data centres, subsea cable business and subsidiary telco M1. 

Sembmarine shareholders will be voting on the merger with Keppel O&M on Feb 16.

If approved, the deal will likely be completed by end-February. Keppel Corp shareholders overwhelmingly approved the deal in December.

Mr Loh and his team addressed these issues while announcing the company’s annual results.

Despite a challenging year, Keppel posted net profit of $927 million for the full year ended Dec 31, 2022. This was despite a 41 per cent slide in second-half net profit to $429 million, from $723 million during the July-December 2021 period.

Full-year earnings were about 9 per cent lower than the $1.02 billion in FY2021, mainly due to lower earnings in urban development, and provisions for some Keppel O&M’s projects in the United States. But FY2021 numbers also benefitted from fair value gain of $277 million from the company’s investment in Envision AESC.

Second-half revenue was $3.26 billion, 12 per cent down from $3.72 billion a year earlier. For the full year, revenue was $6.62 billion, slightly above $6.61 billion in FY2021.

Asset management was the largest profit contributor in FY2022, with its earnings of $311 million representing over a third of the group’s net profit. Energy and environment reported $260 million net profit, reversing $414 million net loss in FY2021.

Recurring income more than doubled to $560 million in FY2022, representing 67 per cent of income.

The company declared a final dividend of 18 cents per share. Together with its interim payout of 15 cents per share, total annual dividend per share works out to 33 cents, unchanged from the previous year.

Mr Loh said that while the company does not have a dividend policy, it has been paying out about 50 to 60 per cent of distributable income.

The company ended FY2022 with free cash outflow of $408 million and posted return on equity of 8.1 per cent, slightly down from 9.1 per cent in FY2021. Net gearing stood at 0.78 times.

Since embarking on its “Vision 2030” asset light strategy in late 2020, Keppel has reported asset monetisation of over $4.6 billion. In 2022, it made joint investment of some $2.8 billion in energy transition projects. Assets under management stood at $50 billion as at last year.

Keppel O&M secured annual revenue of $2.8 billion – its highest in six years – and clinched another $8.1 billion in new orders, bringing its total order book to $11 billion. Keppel shares closed up one cent at $7.65 on a volume of 1.9 million units.