Keppel’s Q1 revenue down 6.3% to S$1.5 billion; legacy O&M assets a drag on net profit

KEPPEL reported on Thursday (Apr 25) a 6.3 per cent fall in revenue to S$1.5 billion for the quarter ended Mar 31, compared to S$1.6 billion in the previous corresponding period.

The global asset manager and operator attributed the “comparable” year-on-year revenue to increases in the contributions from infrastructure and connectivity offsetting lower revenue from the real estate segment. 

Net profit for the quarter was down on the year, said the group without disclosing its net profit figure.

Speaking to reporters and analysts at a briefing on Thursday to discuss the company’s business update, Keppel’s chief executive Loh Chin Hua said the group has “started the year on a good footing” with “considerable progress” on its transformation goals. 

Loh said that as Keppel continues to pursue opportunities in areas such as renewables, clean energy and decarbonisation solutions, the company is also expanding its pipeline of long-term contracts that offer stable income and earnings visibility.

Legacy troubles persist

Keppel still suffered a blow from legacy issues – primarily its offshore and marine (O&M) assets that the group hived off to Seatrium, a company that was a result of the combination of Keppel O&M and Sembcorp Marine. 

Excluding the effects of its legacy O&M assets, the quarter’s net profit was up on the year, driven by stronger performance in the infrastructure and connectivity segments.

These legacy O&M assets’ effects comprise the profit and loss effects from Seatrium shares, financing costs relating to the vendor notes, as well as contributions from stakes in Floatel and Dyna-Mac.

However, if the effects of these legacy O&M assets were accounted for, Keppel’s earnings would have dipped on a year-on-year basis, the company said. 

Loh said Keppel has thus far sold 60 per cent of Seatrium shares in its segregated account, in line with the agreement inked when Sembcorp Marine and Keppel O&M merged to form Seatrium. The shares were sold at an average price of S$0.13, he noted. 

Keppel is still holding on to about 1.37 billion shares of Seatrium. The loss in Q1 that can be attributed to these shares is about S$54 million, against a gain of S$14 million in the corresponding quarter last year. 

If Keppel had not sold 60 per cent of its shares, the loss would have been “even greater”, Loh said. The group will now account for these as “legacy assets” that are separate from its continuing business. 

Meeting targets

Loh said Keppel’s asset monetisation has surpassed S$5.5 billion, and the group remains focused on achieving its interim target of S$10 to S$12 billion by end-2026.  

Since the start of 2024, Keppel has reported the monetisation of about S$170 million in assets, mainly from the proposed divestment of a residential project in Wuxi.

In the year to date, the group has raised about S$436 million in equity, and completed about S$1.1 billion in acquisitions and divestments. 

“We will continue to drive organic growth as we work with laser focus towards our S$200 billion funds under management (FUM) target by end-2030,” Loh said. 

Keppel currently has a portfolio of 19 active private funds, and the company plans to launch another three new funds for data centre, education assets and private credit later this year.

Loh said that Keppel has identified a deal flow pipeline of over S$14 billion across its private funds and listed vehicles. The group will continue to “actively pursue and actualise” these deals, which are mostly in the infrastructure and connectivity spaces, he added. 

One potential point of concern for the group, as well as its investors, might be its debt levels. 

Keppel’s net gearing ratio stood at 0.9 as at Mar 31, unchanged from the end of 2023 but up from 0.83 times as at end-March 2023. 

As at end-March 2024, about 64 per cent of Keppel’s borrowings were on fixed rates, with an average cost of funds of 3.8 per cent and a weighted tenor of about three years.

In response to a question on how much more the company would be willing to push its balance sheet in terms of acquisitions given the relatively high gearing levels currently, Loh said the company is “keeping a close watch” on its gearing. 

However, he noted that from H1 this year, Keppel will begin reporting figures on net debt to earnings before interest, taxes, depreciation and amortisation (Ebitda), reflecting its continuing business. 

“I think that’s probably a more appropriate look at Keppel going forward, rather than just focusing on the net gearing,” he said. 

Rejigged China strategy

Loh said that Keppel has been “steadily divesting” its land bank in China since 2017. The group has divested about S$3 billion of land bank over this period and earned about S$1 billion in profit. 

Keppel has also clawed back about S$5 billion worth of renminbi, because the company is no longer actively buying land in China.

“It’s not because we had a (certain) view on the market, it’s just the change in our business model to (one of) more recurring income,” Loh said. “So all this has helped us to de-risk exposure to China considerably.”

Most of the assets Keppel has in China now are land banks that are at historical cost. Loh said there is thus “a bit of headroom” between the market value of the land currently against the historical cost. 

Loh said China will still be a good market for Keppel in the medium to long term, but the country’s needs currently are different compared to 30 years ago when Keppel first entered the market. 

Keppel has updated its China playbook to focus on the things that the country requires today. These include broad themes of energy transition, clean environment and connectivity, as well as aspects such as rental housing for the real estate sector. 

“We have also mapped that against what Keppel’s capabilities are, and we’ve come up with a playbook that we believe is more appropriate and more fit for purpose in China today,” Loh added.

Shares of Keppel, which are trading on an ex-dividend basis, closed 3.5 per cent or S$0.25 lower at S$6.86 on Thursday.