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Keppel Corp posts lower Q1 net profit, eyes 15% mid- to long-term ROE

DESPITE posting a 40 per cent lower net profit of S$202.9 million for the first quarter of financial year 2019 - as a result of smaller gains from en bloc sales of residential projects - Keppel Corporation is targeting a mid- to long-term return on equity (ROE) of 15 per cent for the group.

In a results briefing webcast on Thursday, the conglomerate said that it had generated S$337.5 million in net profit for the corresponding quarter in the preceding year on the back of a S$289 million gain arising from the en bloc sale of Keppel Cove in Zhongshan, China. In contrast, there were smaller gains of S$174 million in the three months ended Mar 31 from the divestment of a 70 per cent interest in Dong Nai Waterfront City, Vietnam and the re-measurement of previously held interests in telco M1 at acquisition date.

M1 was recently acquired by Konnectivity, a joint venture between Keppel Corp and Singapore Press Holdings (which owns The Business Times), with the joint-venture company majority owned by Keppel.

Revenue was S$1.53 billion for Q1 FY19, S$61 million or 4 per cent higher year-on-year, due to higher revenues from power and gas sales, infrastructure projects in Singapore and Hong Kong, asset management and the consolidation of M1 but offset by lower contributions from property trading in Singapore.

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Earnings per share for the quarter stood at 11.2 Singapore cents or 40 per cent lower than the 18.6 cents in Q1 FY18.

Net asset value per share was S$6.35 as at Mar 31, marginally higher than S$6.22 three months ago.

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

Keppel Corp chief executive officer Loh Chin Hua shared that the group will "work all our engines hard, to strengthen our existing businesses, as we seek out new markets and profit pools. We will work towards a mid- to long-term ROE of 15 per cent for the group".

He commented: "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 Q1 FY19.

Mr Loh also laid out plans for the group's newly acquired subsidiary M1, saying: "We are, together with SPH, working with M1's board and management to transform the company 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."

Another key area of work is to tap synergies from collaboration with the rest of the Keppel group, he added.

"We can also harness M1's capabilities to further enhance the Group's diverse offerings, whether in Singapore or overseas, for example, through collaborating with Keppel Urban Solutions on smart-city projects. Keppel can also leverage M1's data analytics capabilities to glean actionable insights that can be applied in our master development projects and retail properties," he said.

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