Analysts have remained positive of Keppel Limited’s prospects after the company reported earnings of $940 million for the FY2024 ended Dec 31, 2024. The company’s overall bottomline fell by 76.9% y-o-y but it was due to the absence of divestment gains in FY2023, most notably from the sale of Keppel’s legacy offshore and marine (O&M) segment.
Earnings from continuing operations in FY2024 fell by 6% y-o-y to $832 million. Keppel’s legacy O&M assets and discontinued operations posted a net loss of $124 million compared to the $3.1 billion net profit in FY2023. The net loss was due to the value losses from Keppel’s stake in Seatrium compared to gains in FY2023 and higher financing costs and amortisation of Day 1 fair value loss on notes receivables as the Asset Co transaction was completed at the end of February 2023.
CGS International analysts Lim Siew Khee and Kenneth Tan kept their “add” call as they cheer Keppel’s transition into becoming a streamlined, asset-light global asset manager.
The company’s FY2024 earnings from continuing operations of $832 million came close to their estimates as well as that of the Bloomberg consensus at $849 million. Keppel’s 2HFY2024 net profit of $528 million also came within Lim and Tan’s estimates. “The positive surprise in 2HFY2024 was [the] real estate [segment’s] net profit of $177 million (+24% h-o-h, +37% y-o-y) which beat our $71m estimate, thanks to revaluation gains.”
As at the end of December 2024, the analysts laud the company’s funds under management (FUM), which grew by 2.4 times to $88 billion by 2024 from 2020. Keppel’s recurring income was also steady at $766 million for the FY2024.
In their Feb 6 report, Lim and Tan highlight the growth potential of Keppel’s new business engines, namely the Bifrost cable system and its data centre portfolio. In FY2025, the company’s connectivity segment is likely to be the main profit driver with the Bifrost cable system ready for service in 2H2025.
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“We estimate total contributions from Bifrost including gains and operational & maintenance fees at $22 million/$86 million/$83 million for FY2025/FY2026/FY2027. With this, we expect Connectivity’s FY25F profits to grow 14% y-o-y to $235 million,” they write.
Asset monetisations, especially sizeable transactions, will be a key catalyst for Keppel. Monetisations reached $1.5 billion in FY2024, returning to the average levels seen in FY2020 to FY2022.
In addition to their “add” call, Lim and Tan have increased their target price to $9.28 from $8.78. The new target price is still based on sum-of-the-parts (SOTP) valuations.
Meanwhile, Citi analyst Brandon Lee saw Keppel’s FY2024 results as a miss, but it displayed its strategy to shift its earnings mix to recurring income and proactive asset monetisation activities. In FY2024, Keppel’s recurring income made up 72% of its total earnings compared to 56% in FY2022 but down from 88% in FY2023.
In a report after Keppel’s results briefing, Lee highlighted Keppel’s focus on delivering Bifrost before embarking on new pursuits and generating cash for its rigs before monetising Rigco (or Asset Co).
On Bifrost, Keppel said it will earn operating & maintenance fees of over $200 million per pair for 25 years on the five fibre pairs it owns (but not the other seven owned by its two other joint developers) in Bifrost once the project is completed.
Earnings will be recognised in the form of service fees with inflation pegged every year, Lee notes.
At its results briefing, CEO Loh Chin Hua said that Keppel has been exploring the pursuit of two more cable systems with over 30 fibre pairs. Its team has been talking to various parties about landing rights and negotiations are “quite advanced.” The newer cable projects are expected to generate an internal rate of return (IRR) in the mid-teens compared to Bifrost’s 33%.
“Nonetheless, Keppel’s current focus is to deliver Bifrost and will have more news to share on the two cable systems next 12 months, with final investment decision (FID) in FY2026 at the earliest,” says Lee.
On Rigco, Lee sees Keppel’s securing control of the 13 legacy rigs under the company as giving it more “optionality and control” over Rigco’s $1.1 billion cash. This will also facilitate their monetisation process more effectively.
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“Of the 13 rigs, six are completed and out on charters (i.e., leased, which we believe is generating stable cash-flows), two are substantially completed, and the rest further behind,” Lee writes.
To monetise the rigs, CEO Loh said the assets have to generate cash flow by chartering them. At this point, Keppel is looking at bareboat charters. Following which, the company is looking to explore several options such as an asset sale, bring in limited partners (LP) and house the assets in a fund or securitise them.
“The timeline to monetize them is likelier three to five years from today, but Keppel is hoping to do three years, which we believe is possible given improving conditions in the offshore rig sector (in terms of higher charter rates and utilization rates) and fossil fuels now having an extended useful life,” Lee adds.
Other pointers of note include Keppel’s confidence in delivering its asset monetisation target of $10 billion to $12 billion by FY2026 as well as its positive outlook on artificial intelligence (AI) innovations.
Lee believes that it is too early to comment on how the recent export quotas on AI chips and cheaper AI models will unfold in terms of demand and supply although digitisation, AI and sustainability trends are here to stay.
“As large/medium/small enterprises start looking at AI innovations in a more economical way, it is positive and more of an opportunity than threat, as this helps Keppel to provide digital infrastructure as the demand grows exponentially with the costs drop and efficiency increase. Datapark+ is still very much in Keppel’s frame of thinking and the concept isn’t just for Singapore,” Lee writes.
The analyst has kept his “buy” call and target price of $8.93. His target price is derived by a taking a 20% conglomerate discount to the SOTP of $11.16. This is based on Keppel’s infrastructure division at 12 times FY2024 P/E, its connectivity division at 14 times FY2024 P/E, its asset management division at 15 times FY2024 P/E and its urban development (or property) division at 10% discount to revalued net asset value or RNAV.
DBS Group Research analyst Ho Pei Hwa has kept her “buy” call with an unchanged target price of $9 as Keppel’s FY2024 core profit excluding its legacy O&M assets stood “slightly ahead” of expectations. This was aided by higher valuation gains and infrastructure, which contributed to 63% of the company’s total profit.
In her Feb 6 report, Ho sees “promising earnings ahead”, projecting an 8% compound annual growth rate (CAGR) for Keppel’s core earnings over the next two years. Her estimates, which excludes the company’s legacy O&M assets and discontinued operations, is largely driven by Keppel’s FUM in asset management.
Ho also notes Keppel’s improved earnings quality as the company’s recurring income improved from contributions of 25%-40% before Vision 2030 to 60%-80% since 2022.
“This trend should continue as the company focuses on shifting revenue from orderbook-based sources to fees and returns from its portfolio assets (real estate, infrastructure, and digital assets). While its return on equity (ROE) of [around] 10% falls short of its 15% target, FUM growth and the recovery/divestment of properties should enable the company to achieve its target in the medium term,” Ho writes.
The analyst believes Keppel’s FUM looks set to reach the $100 billion target ahead of the company’s FY2026 timeline. Keppel aims to grow its FUM to $200 billion by 2030.
At the same time, property and land sales in China and Vietnam are expected to bottom out as economic conditions stabilise.
Ho’s SOTP valuation is based on 18 times FY2025 on Keppel’s asset management earnings, a 25% discount to RNAV plus a discounted cash flow (DCF) formula for land sales in Tianjin Eco-city, 6 times P/E on infrastructure and 8 times P/E on connectivity.
“We believe 40% of the upside will be driven by an earnings CAGR of 8%, while the remaining 60% will be on a multiple re-rating, from 12 times towards 14.5 times P/E,” she says.
The team at OCBC Investment Research (OIR) also kept its “buy” call and fair value estimate of $8.60 as it notes Keppel’s “relentless reinvention”.
In its Feb 6 report, the OIR team notes Keppel’s 5% growth in profit from continuing operations in FY2024, the company’s infrastructure segment continuing to support earnings and the derisked exposure to Chinese real estate. It adds that Keppel’s sub-sea cable systems “offer attractive opportunities”.
Finally, PhillipCapital’s Paul Chew has maintained his “buy” call with a higher target price of $8 from $7.60.
Based on his estimates, Keppel’s FY2024 patmi stood above expectations at 110% of his full-year forecast, which Chew sees as a “reward” as the company transitions into becoming an asset manager.
While Chew has increased his FY2025 earnings estimates by 2% from higher asset management income, the analyst expects the year’s bottomline to be “lacklustre” from muted real estate sales, competitive mobile markets and softer renewable earnings. Chew also believes vessel sales in Asset Co may materialise as charter income builds up.
At the same time, he sees operating earnings to be “strong” in FY2026 as the new Keppel Sakra Cogen power plant and Bifrost cables are operational.
“Keppel pays an attractive yield of 5% as the company transitions into an asset manager leveraged on data centre infrastructure and operations rollout through its fund management, renewable energy, cooling and subsea cable operations,” he says.
Shares in Keppel closed flat at $6.79 on Feb 7.
