Keppel's H1 dividend up 4 times, profits rebound to S$300m from pandemic slump
Diversified conglomerate reports better showing across almost all key segments; hints at more M&A action; quadruples interim dividend
Singapore
AFTER surviving one of its worst periods a year ago, BN4 has switched gears to "thrive mode". The diversified conglomerate reported on Thursday that it swung back into black for the first six months to June, teased about more M&A action afoot and rewarded shareholders with a surprise quadrupled dividend.
Keppel posted a net profit of some S$300 million in the first half of FY2021 - a stark reversal from a loss of S$537 million in the corresponding period a year ago. This was led by a better showing across all key segments except asset management, which in the previous period was boosted by gains from the reclassification of Keppel Infrastructure Trust (KIT) and sale of Keppel DC Reit units.
"Notwithstanding the continued impact of Covid-19 on the global economy, all of Keppel's key business units were profitable. The group's operating performance has improved, not just compared to last year, but even when compared with H1 2019," said chief executive Loh Chin Chua.
Excluding revaluations, impairments and divestments (RIDs) and Covid-19-related government grants, Keppel achieved a net profit of S$280 million in the latest period under review versus a net loss of S$72 million in first half 2020. It was also a marked improvement from a net profit of S$149 million posted in pre-pandemic first half 2019.
Revenue for the six months rose 16 per cent to S$3.7 billion, buoyed largely by higher revenue from property trading projects in China under the urban business and higher acquisition, divestment and management fees in the asset management segment.
Revenue from Keppel's energy and environment business saw a slight improvement, led by among others higher electricity sales. Its fourth key business, connectivity saw flattish revenue growth as higher contributions from the logistics and data centre businesses were partly offset by lower service revenue in M1.
Earnings per share came in at 16.5 Singapore cents versus a loss per share of 29.5 Singapore cents last year.
In the six months, Keppel's asset monetisation programme saw the firm receive S$854 million cash. To date, it has announced over S$2.3 billion of asset monetisation since it embarked on the programme in September last year. About half of the transactions have been completed so far, said Mr Loh, adding that the firm expects to surpass S$3 billion in asset monetisation ahead of schedule, and will aim to achieve the higher end of its S$3-5 billion target by end-2023.
The board declared an interim dividend of 12 Singapore cents a share - significantly higher than last year's interim dividend of 3 Singapore cents and also beating H1 2019's payout of 8 Singapore cents. The books will close on Aug 10, with payouts going out on Aug 19.
On whether Keppel will continue to dole out generous dividends as more assets get monetised down the road, Mr Loh replied that although the firm has no dividend policy, it has typically paid out 40-60 per cent of net profits.
He added: "Of course, with the monetisation programme, we can afford to... you know, be a little bit more open minded in terms of returning capital to the shareholders to reward them for their patience."
To grow earnings quickly, Keppel said it will will actively explore "opportunistic" M&As. "The significant balance sheet space released from the monetisation programme will allow us to undertake inorganic options to re-position our portfolio for new growth. We are looking at all options and it's a group wide exercise.
"Renewable energy is certainly one of the growth engines that we are looking to get a good head start on," he responded, when prodded.
The mood change at Thursday's results briefing by Keppel's top executives was evident compared to last year's sombre settings.
"Keppel's latest results show the group firing on all cylinders," said Terence Chua, Phillip Securities' senior research analyst. "What stood out for me is that its weakest unit - the offshore & marine unit (Keppel O&M) - has started to turn around and is profitable on the Ebitda (earnings before interest, taxes, depreciation, and amortization) level," he added.
That's no small feat after last year's pandemic-led historic oil crash hammered its O&M business and led to hefty impairments; as a result, Keppel posted S$505.9 million losses in FY2020 - its biggest loss since the Asian financial crisis.
Things are looking up now. In H1 2021, Keppel O&M eked out a net profit of S$107 million from a loss of S$959 million a year ago, which included the recognition of S$269 million gains from its share of Floatel's - its associate company - restructuring gain. Led by significant overhead cuts, which began in 2015 during the oil slump, Keppel O&M has to date shaved off over S$525 million per annum from its cost structure.
"Despite increased manpower costs and Covid-19-related manpower constraints at our Singapore yards, Keppel O&M was Ebitda positive in H1 2021," Mr Loh said.
In contrast, its giant sector peer S51 is still enduring hard times. On Thursday, SembMarine reported net losses that more than trebled to S$647 million in the first half period from a year ago owing to massive provisions for higher costs, chiefly labour cost given the manpower crunch amid the outbreak.
Both Sembmarine and Keppel said last month that they would begin talks to merge their mammoth O&M operations. Both firms have signed a non-binding pact to start talks and according to Mr Loh, it would take a few months to reach a definitive agreement.
When asked to comment on the divergence in both firms' O&M performances given that they both face common pains such as manpower woes, Mr Loh replied: "The pain is shared by all in the industry. The right sizing, as I have shared, has also helped."
Keppel O&M CEO Chris Ong said: "We do have the same manpower restrictions but we go about managing it very closely with our clients to make sure that we prioritise the right work with the right skill sets. By working together with the client, we are able to mitigate certain restrictions."
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