Analysts positive about Keppel’s asset monetisation targets, see positive share catalysts

ANALYSTS were positive on Keppel Corporation after the group announced on Wednesday (May 3) its goal to reach an asset monetisation of S$10 billion to S$12 billion by the end of 2026.

CGS-CIMB maintained its “add” call on Keppel and its target price was unchanged at S$8.70.

This came as the brokerage noted that EY valued the group at around S$14 billion to S$19 billion or equity value of S$7.87 to S$10.69 in the valuation exercise on Thursday.

CGS-CIMB analysts Lim Siew Khee and Izabella Tan said Keppel’s cumulative asset monetisation target is feasible, as the group has been achieving S$1.2 billion to S$1.6 billion per annum since 2020.

The latest monetisation target would imply a further S$5 billion to S$7 billion worth of assets to be divested, they said.

The analysts think that Keppel is likely to reach its Vision 2030 target of S$17.5 billion by 2029, assuming it meets its new targets and keeps up its annual monetisation pace of S$1.8 billion.

In a separate note, Citi maintained its “buy” call on the stock with a target price of S$7.51.

Citi’s analysts who attended Keppel’s recent media briefing said they left the meeting feeling “more convinced” of the company’s commitment to its ongoing transformation initiatives.

The research team said the resumption of share buybacks, “decent” dividend per share of S$0.33 in the past two years, and a sustained pace of asset monetisation – which are at healthy premiums to book values – are near-term share-price catalysts.

Meanwhile, CGS-CIMB believes that Keppel can hit its 15 per cent return-on-equity (ROE) target by 2026 as the group plans to replace “lumpy” real estate development profits with income that is more recurring in nature.

The brokerage expects a S$10 billion valuation for recurring income based on a 15 times FY2023 price-to-earnings ratio estimate.

“With the new stream of interest income from vendor notes of S$170 million per annum from the legacy rigs transferred to Asset, Keppel’s recurring income could expand to an estimated S$670 million in FY2023,” said CGS-CIMB’s Lim and Tan.

Citi’s analysts were positive that a higher recurring income composition and faster-than-expected pivot from its “lumpy” property development business would allow Keppel to trade closer to its global asset manager peers’ price-to-earnings ratio of mid-high-teens, compared with its current low-teens.

Separately, Lim & Tan Securities upgraded the stock to an “accumulate on weakness” rating.

“Keppel is taking a leaf to follow in the successful footsteps of its asset-light peers such as CapitaLand Investment and Sembcorp Industries,” said analysts.

The upgrade came as the research team projects Keppel’s price-to-book to be re-rated near the 1.4 to 1.5 times level, following its 15 per cent ROE target.

But it also noted that there could be “bouts of weakness” amid recessionary fears in the US and Europe in the second half of 2023.

Shares of Keppel Corp were trading up 0.6 per cent or S$0.04 to S$6.44 as at 11.50 am on Thursday.