Last hurrah from Keppel’s former O&M business

KEPPEL’s chief Loh Chin Hua was bent on focusing on the fruits of the company’s labour in recent years to remake itself, more than the gains from the divestment of its offshore and marine (O&M) unit, at the company’s recent earnings call.

That was never going to be easy to do.

Some S$3.3 billion from the divestment gains of Keppel Offshore & Marine had led Keppel to post the most profits ever in its five-and-a-half decade long history, of S$4.1 billion for FY2023. That marks a more than four times increase from a year earlier.

“We have been working really, really hard for the last few years, transforming Keppel. It was not done over a single year. Besides the gain... what’s important is that we have really transformed the group,” said Loh, who marked his 10 years as Keppel CEO last month (he was appointed in January 2014).

He used the word “transform” more than 15 times at the earnings call – and for good measure.

In recent years, Keppel has transformed itself from a multi-business model, which used to count the O&M business as an earnings lynchpin – and pain, when the cycle turned – to an asset-light integrated business.

Last May, about two years after it exited the offshore rig building business, Keppel made itself over again – it shed its long-held conglomerate status to become a “differentiated global alternative real asset manager and operator”.

Keppel, which counts Temasek as the single largest shareholder, wears its do-over handsomely.

DBS Group Research analyst Ho Pei Hwa wrote in a recent report: “We came away from Keppel’s briefing with increased confidence in its outlook and transformation journey.”

For the full year, excluding disposal gains and loss from the distribution of Keppel Reit units, core profit came in at S$996 million – up 19 per cent from a year earlier, and beating some analyst estimates.

Keppel’s infrastructure segment was the star with full-year net profit more than doubling to nearly S$700 million from the previous year. The other two segments – real estate and connectivity – were also profitable, although the former earned less given the sector’s challenges in China.

More significantly, the texture of Keppel’s earnings has changed as the company moves away from lumpy earnings to the vaunted recurring income.

Last year, recurring income from continuing operations rose 54 per cent year on year to S$773 million, making up 88 per cent of the company’s net profit versus 60 per cent in FY2022. Infrastructure was the largest driver of the recurring earnings.

Keppel’s funds under management (FUM) is set to bulge by 44 per cent from S$55 billion as at end-2023 to S$79 billion once the acquisition of Europe’s Aermont Capital is done and dusted sometime over the first quarter. This would bring it closer to its S$100 billion target by 2026.

Loh said following the acquisition, “big league” players have taken notice of the company and it has been approached by “various groups” since the announcement. These augur well for Keppel, which said it remains “laser-focused” to hit an FUM target of S$200 billion by end-2030.

Indeed, it feels like a while ago when Keppel had offloaded its sizeable O&M business and made itself over but in fact, it wasn’t and much has been done over a short span.

Keppel’s record FY2023 profit can be considered as the last hurrah from its former O&M unit. Interestingly, it had also led to the group’s record losses four years ago as the pandemic crushed energy demand and oil prices tumbled to historic lows.

This could well be Keppel’s breakthrough after a tough stretch.