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Keppel Corp posts lower net profit of S$202.9 million

Despite a Q1 ROE of 7%, the conglomerate aims for 15% ROE in the mid-to-long term

Keppel's Nanjing residential project sold out all 271 units of its first phase.


KEPPEL Corporation is targeting a mid-to long-term return on equity (ROE) of 15 per cent, even as it reported a 40 per cent drop in first quarter net profit to S$202.9 million.

The fall was mainly due to smaller gains from en bloc residential sales by its property arm, the conglomerate said.

Keppel Corp chief executive officer Loh Chin Hua, in a results briefing webcast on Thursday, also shared that the offshore and marine (O&M) division reversed its net loss of S$22.8 million a year ago to post a profit of S$5.9 million for the three months ended March 31, thanks to profit contributions from associated companies.

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The unit, which has been battered by depressed oil prices, is increasing its headcount of full-time staff by 1,800 in Singapore and overseas this year, for the first time since it began laying off workers in early 2015.

Keppel O&M's global headcount was around 36,200 as at end-2014. The current headcount is 10,800.

New contracts totalling about S$1 billion have been secured so far this year - 59 per cent of the S$1.7 billion for the whole of 2018 - prompting the division to plan for additional staff as it prepares for the recovery of its business and to handle the anticipated increase in workload from new projects.

Its net order book was S$4.7 billion as at end-March, an increase of S$400 million versus three months ago.

One reason Keppel Corp's net profit fell sharply was that the previous corresponding quarter had been boosted by a gain of S$289 million from the en bloc sale of Keppel Cove in Zhongshan, China.

In contrast, the group chalked up smaller gains of S$174 million for Q1FY19 from the divestment of a 70 per cent interest in Dong Nai Waterfront City in Vietnam and the re-measurement of previously held interests in telco M1 at acquisition date.

M1 was recently acquired by Konnectivity, a Keppel Corp-led joint venture with Singapore Press Holdings, which publishes The Business Times.

Aside from O&M that contributed positively to its bottom line, Keppel Corp saw its investments division also swing into profitability, registering earnings of S$48.9 million against a net loss of S$43.8 million a year ago, mainly due to fair-value gain from re-measurement of interests in M1.

But profit in its property and infrastructure units declined from S$377.8 million and S$26.2 million to S$132.3 million and S$15.9 million, respectively.

The top contributor to its earnings, the property unit, turned in a poorer performance due to higher gains from the Zhongshan project a year ago.

Lower contribution from energy infrastructure and the logistics business, as well as share of losses of associated companies, led to the infrastructure division posting lower earnings.

First-quarter revenue was S$1.53 billion, up 4.1 per cent year on year from S$1.47 billion, due to higher revenues from power and gas sales, infrastructure projects in Singapore and Hong Kong, asset management and the consolidation of M1.

Earnings per share for the quarter stood at 11.2 Singapore cents, down from 18.6 cents previously.

Net asset value per share rose to S$6.35 as at March 31, compared to S$6.22 three months ago.

Net gearing increased from 0.48 time as at Dec 31, 2018 to 0.72 time as at March 31, as a result of higher working capital requirements, financing for M1's acquisition, as well as the inclusion of lease liabilities due to the adoption of the new accounting standard on leases.

Mr Loh said Keppel Corp will be firing on all cylinders to achieve an ROE target of 15 per cent in the mid- to long-term horizon.

"This is a realistic goal, bearing in mind that the group had achieved average ROE of 17.7 per cent over the past decade (2009-2018). ROE targets have also been set for each of our key businesses... Let me emphasise that these are not forecasts, but targets, which will serve as guides not just for the business units, but for the group in our strategic and investment decisions."

The conglomerate had an annualised ROE of 7 per cent in Q1FY19.

Keppel Corp has plans for M1 too. Together with SPH, it intends to transform the telco and grow it to be a key pillar of earnings for the group.

"The areas we are looking into include redefining M1's consumer product offerings, redesigning the customer experience, increasing our focus on the enterprise segment, improving operational efficiency and exploring future growth platforms," Mr Loh added.

Keppel Corp shares ended at S$6.74 on Thursday, down two cents before the results were released.