Keppel Group will 'hunt as a pack' for profit pools that might otherwise be hard to tap

Singapore

DIFFERENT business verticals of Keppel Corporation will "hunt as a pack" for opportunities to achieve its mid- to long-term return on equity (ROE) target of 15 per cent, unveiled in its first-quarter results release last week, chairman Lee Boon Yang said at the group's annual general meeting (AGM) on Tuesday.

This figure was derived by aggregating different targets for individual verticals - for instance, 15 per cent for Keppel Offshore & Marine (O&M), 12 per cent for Keppel Land, 25 per cent for its recent acquisition of M1 together with Singapore Press Holdings, and so on.

Dr Lee said: "We sometimes struggled with finding a common purpose across the whole group, so refreshing the mission, seeing ourselves as a solution provider for sustainable urbanisation, is a very critical step to unite the whole group under one single purpose, common mission.

"What we are also doing with a number of privatisations taking place is we have simplified our corporate structure and (are) also now working very hard at collaborating, unleashing synergies, hunting as a pack as one Keppel."

The parent made a move to take Keppel Telecommunications & Transportation (T&T) private via a scheme of arrangement late last year.

Dr Lee said that the group is looking for new profit pools that individual business units under Keppel on their own would have found very difficult to tap. Inter-company collaboration will be important henceforth.

Said Keppel CEO Loh Chin Hua: "Just to be clear, 15 per cent is not a forecast; it is a target and it is a very stretched target, but I believe that if our group can work well together and execute our business plan, and of course assuming the market conditions are not unfavourable to us, we should be able to hit this 15 per cent ROE." Some ways he said the group's subsidiaries are working to meet this target is for example, by "turning our assets faster" for Keppel Land, and riding on the early signs of improvement in the offshore rig sector for Keppel O&M.

"Keppel O&M is now fighting fit. We have been rightsizing ourselves for the last couple years, and as we reported last week, this is the first time since early 2015 that we expect...to start increasing our workforce. If the industry continues to go on the mend, we think that 15 per cent (ROE) for Keppel O&M again is a stretched target but possible," said Mr Loh.

Keppel last week posted a 40 per cent drop in first-quarter net profit to S$202.9 million, mainly due to smaller gains from en bloc residential sales by its property arm, while revenue for the three months ended March 31, 2019 rose 4 per cent to S$1.53 billion.

For 2018, it posted a net profit of S$943.8 million, up from S$196 million in 2017, which was hit by financial penalties, while revenue was flat at S$5.96 billion.

At the AGM, Dr Lee also said that the parent group and Keppel Infrastructure Trust (KIT) have no plans to purchase the troubled Tuaspring Desalination Plant.

After Hyflux's planned rescue deal with Indonesia's Salim-Medco fell through earlier this month, Hyflux is slated to lose its largest asset to national water agency PUB. Asked by a shareholder if Keppel or KIT might consider buying the asset on the cheap, Dr Lee said: "This is really something for KIT to decide."

Dr Lee reiterated KIT management's position, which is that KIT had notified Hyflux of its intention to preserve its rights under the relevant agreement between parties to acquire Hyflux's 30 per cent interest in SingSpring Desalination Plant. KIT holds the remaining 70 per cent.

"Right now, we are very focused on making the acquisitions that we have made recently, to make it work... These are big pieces that we have brought together in order to streamline the Keppel corporate structure, and we want to focus our resources and capital on transforming both of these important pieces (M1 and Keppel T&T). We are not at this moment examining other possibilities."

All 11 ordinary and special business resolutions were passed at the meeting.