Keppel H1 net profit up 65.9% to S$497.5m; higher dividend declared
CONGLOMERATE Keppel Corporation on Thursday (Jul 28) posted a headline net profit of S$497.5 million for the first half of the year ended June, up 65.9 per cent from its earnings of S$299.8 million in the corresponding year-ago period.
The group said this was underpinned by profitability across all its segments, including the discontinued offshore and marine operations.
On a per-share basis, this translated to earnings of S$0.279, up 69.1 per cent year on year from S$0.165. Net profit from continuing operations rose 26.4 per cent to S$434.1 million from S$343.5 million in the year-ago period. Net profit from discontinued operations came in at S$63.4 million, reversing a loss of S$43.8 million.
The improved earnings for the period translated to a sweeter dividend payout for shareholders. A higher interim dividend of S$0.15 per share was declared for H1, up 25 per cent from the interim dividend of S$0.12 in 2021. The interim dividend will be paid out to shareholders on Aug 19.
Revenue for H1 rose 16.2 per cent to S$3.4 billion, some 16.2 per cent higher than revenue of S$2.9 billion in the year-ago period, on the back of a significant increase in contributions from the group’s energy and environment and asset management segments; these more than offset a decline in the urban development segment’s revenue.
Speaking to reporters and analysts in a call to discuss the company’s financial results, Keppel’s chief executive Loh Chin Hua noted that the global economic outlook has weakened over the past few months in the wake of factors such as the Ukraine conflict, climate change and supply chain disruptions.
Inflationary pressures, interest rates and energy prices are also expected to remain at elevated levels for longer, he noted.
But Keppel has taken some steps to ensure it is buffered in such an environment.
As at end-June, the group has locked in interest rates for 75 per cent of its loans with an average interest cost of 2.56 per cent and a tenure of about 3 years. This will help to ensure that Keppel remains in a strong financial position to “weather the headwinds”, said Loh.
“The essential services that Keppel provides are relatively resilient during economic slowdowns, as they had been during the pandemic,” said Loh. He added that in an environment where inflation is expected to persist for some time, there is likely to be strong demand for real assets with cash flow. Such assets include infrastructure, data centres and real estate.
Keppel had in 2020 announced its decade-long roadmap that would eventually wind up with the company having a greener portfolio. Since October 2020, the group has monetised over S$3.6 billion in assets.
Keppel has made several moves on its O&M front, and stands to realise some S$9.42 billion in value from the proposed O&M transactions including the definitive agreements for the proposed combination of Keppel O&M and rival Sembcorp Marine, as well as the resolution of Keppel O&M’s legacy rigs and associated receivables. This figure translates to a value of S$5.32 per Keppel share, the group said.
Loh said the highly awaited merger is on track for completion in Q4 and both companies have “made good progress”. He reckons that the oil price spike in recent months, as well as improving sentiment on the O&M sector, bode well for the merger and the resultant combined entity.
Keppel’s asset management arm, Keppel Capital, is also looking to be a bright spot for the company. Loh said this segment could hit S$200 billion in terms of assets under management (AUM) on the back of the group’s asset-light model and monetisation plans, although he declined to give a specific time frame as the pace of this depends on market conditions.
For H1, the asset management segment’s net profit grew 32 per cent to S$155 million on the back of higher fee income and higher share of fair-value gains on investment properties and data centres.
“Our asset management business not only is a growing contributor but also an increasingly important strategic horizontal that pulls the group together,” said Loh, adding that investors are increasingly targeting assets with predictable cash flow and protection against inflation.
Things were, however, more bleak on the group’s urban development front, Keppel Land. The segment saw revenue fall S$377 million to S$532 million, while net profit slid S$111 million to S$168 million on the back of lower contributions from China trading projects and lower fair-value gains from investment properties.
Louis Lim, chief executive of Keppel Land, said that things have been particularly difficult for the group in China.
In terms of sales, Keppel Land sold 480 units in China for the first half of this year, versus 1,550 units in the same period last year. The group sold 1,010 homes in H1 across all its markets compared to 2,650 homes in the year-ago period, due largely to headwinds in China and Vietnam.
Sporadic virus-related lockdowns and debt issues faced by Chinese property developers have posed “headwinds” to Keppel Land, said Lim. Although things will be tough in the near term, he stressed that selling prices in the markets the group operates in remain strong.
“We maintain a very positive view on the medium to long-term prospects for the Chinese market,” said Lim.
Keppel Land is also looking at opportunities to significantly monetise its China and Vietnam land bank over the next 1 to 2 years, including injecting them into Keppel-managed funds.
Shares of Keppel ended Thursday at S$6.77, up 1.5 per cent or S$0.10.
