Excerpts from UOBKayHian report
Keppel Ltd (SGX: BN4)
- Keppel’s 2024 profit from continuing operations beat expectations with strong growth in its asset management and connectivity segments being the key highlights.
- Dividends were flat on a yoy basis. In our view, the company’s outlook remains bright with capital recycling news likely to focus on real estate, legacy rigs and Bifrost (and possibly other fibre cable projects) in the near to medium term.
Maintain BUY. Target price: S$9.25
A decent set of numbers
Keppel reported a 5% yoy increase in profit from continuing operations to S$1,064m, slightly ahead of our numbers despite a number of lower divestment and fair value gains on a yoy basis.
Identical to 2023, KEP declared a final dividend of S$0.19; together with its interim dividend of S$0.15, the full-year dividend of S$0.34 (payout ratio of 66%) implies a yield of 5.1% based on yesterday’s price.
Key highlights of the results
- A 92% yoy increase in recurring income from its asset management business
- A meaningful 45% increase in net profit for the connectivity segment
- Continued strong operating income from the infrastructure division if we strip out lower distribution income from Keppel Infrastructure Trust (KIT) and an EU associate
- Continued improvement in ROE to 10.1% (2023: 9.5%).
A lot of interest in Bifrost
We note that at the results briefing, there were a substantial number of questions regarding Bifrost (ready for service in 2H25, see our previous note here) which we believe may indicate a turning point in the market’s fuller understanding and appreciation of this business.
Keppel stated that it is looking at another two cable projects comprising 30 fibre pairs in the near to medium term.
High demand for this new asset class
In management’s view, the scarcity value of a unique asset like Bifrost, with no new approvals granted by the US Federal Communications Commission in the past eight years, could lead to a valuation premium as KEP looks to sell its remaining four fibre pairs.
In addition, its operating and maintenance fees of >S$200m per fibre pair over 25 years are very long dated and thus should attract a higher valuation by the market, in its view.
Solid performance from infrastructure segment
Stripping out lower yoy distribution from KIT (2023: special distribution of S$24m) and an associate, Keppel stated that its infrastructure segment delivered strong operating income with 70% of its power capacity contracted for three or more years.
We note that operating profit margins for the segment declined 4.1ppt to 14.0% in 2H24 with management having guided for mid-teens margins in the past.
Valuation/Recommendation
We maintain our BUY rating on Keppel. Our SOTP-based target price remains at S$9.25/share. Keppel currently trades at 2025F PE of 13.0x and P/B of 1.1x which we view as inexpensive, especially considering the company’s more stable earnings stream given the divestment of its offshore marine business.
You can find the full report here and the company website here.
