Keppel sets sights on private equity, infrastructure in shift to be asset management powerhouse

AS KEPPEL : BN4 0% shifts its focus towards becoming an asset manager, chief executive Loh Chin Hua said the group is exploring opportunities in private equity markets and infrastructure.

The move is part of its ongoing efforts to develop steady streams of recurring income.

By expanding both its recurring income and margins, Keppel will get “much closer” to its return-on-equity target of 15 per cent on a sustainable basis, said Loh in Keppel’s FY2023 annual report.

“This is a target that we are confident of achieving well before 2030,” he continued. 

Loh acknowledged that private equity markets have experienced some headwinds in the past few years from fears of recession and elevated interest rates. 

However, he said the easing of inflation and stabilisation of interest rates mean that market liquidity should gradually improve in the later part of this year, which could signal more opportunities for fundraising and dealmaking.

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Despite improvements in market conditions, limited partners (LPs) are expected to remain highly selective of investment strategies and asset classes, with a preference for sectors underpinned by resilient macrotrends, such as the energy transition, climate action and digitalisation. These trends, Loh said, are driving demand for Keppel’s solutions. 

He is also especially optimistic about the infrastructure sector, noting that infrastructure is expected to be one of the fastest-growing asset classes over the next few years.

“A significant amount of capital will be required not only to replace ageing infrastructure but also to provide more advanced solutions needed for sustainable development,” he said. 

As at end-2023, Keppel’s growing base of infrastructure-related supply and service contracts stacked up to S$4.3 billion, with revenues to be earned over the next 10 to 15 years.

In FY2023, the group’s recurring income rose 54 per cent year on year to S$773 million, mainly led by improved contributions from its infrastructure segment. According to Loh, Keppel has become more asset-light and shifted away from lumpy engineering, procurement and construction profits towards steadier trading and fee-based income.

“We are excited by the many opportunities in the infrastructure space. We are confident of not just sustaining our performance but also growing both profits and returns from this segment through our asset-light model,” he added. 

In 2023, the company divested its offshore and marine business and delivered a record high full-year net profit figure in its 55-year history. 

“Our earnings, now much more recurring, should attract growth multiples, rather than being valued based on price to book and discount to revalued net asset value with a further holding company discount,” Loh said.

He added that 80 per cent of analysts who cover Keppel no longer apply a conglomerate discount to the counter. 

Despite the notable progress, Keppel is still looking to drive capital-efficient growth. As at end-2023, the group announced the monetisation of S$5.4 billion out of a S$17.5 billion pool of monetisable assets on its balance sheet.

As at end-2023, Keppel also had total assets of S$26.8 billion on its balance sheet, a decrease of about 17 per cent from end-2021. Over the same period, the group’s funds under management (FUM) rose more than 30 per cent to about S$55 billion from S$42 billion at end-2021.

Loh said that the group will liberate a further S$6.3 billion from its balance sheet when it finishes the monetisation of its vendor notes and landbank, and this will allow Keppel to hit its cumulative monetisation target of S$10 billion to S$12 billion. 

In terms of mergers and acquisitions (M&A), Loh said that Keppel is looking out not just for good assets, but also top talent and strong capabilities that can add value to the group and bolster its value proposition to its global LPs.

He said Keppel cannot rely solely on M&A deals to hit its S$200 billion FUM target, and will have to look at organic growth opportunities too. 

Looking ahead, Loh said that Keppel will continue to streamline itself as a company to become fitter and more agile. 

“We will further invest in our human capital, developing our people to remain relevant in a changing landscape, while bolstering the company’s capabilities in areas such as asset management and digitalisation. We will fully leverage technology, including artificial intelligence, to do our jobs better and faster.”