Firstly, its reaffirmation of capital recycling to unlock $17.5 billion worth of assets serves as a potential re-rating catalyst as it provides “greater certainty on the assets available as well as [a] timeline for monetisation”.
Secondly, Chua views the launch of Keppel Corp’s Vision 2030 transformation office and 100-day programme as positive.
“We expect its ongoing strategic review of its O&M and Logistics units to provide more clarity on the Group’s pathway to its return on equity (ROE) target of 15%. We understand that the outcome of its Keppel O&M review – open to both organic and M&A options - will be known at the end of the 100 days. We expect an announcement in January 2021,” he says.
“We think the Group could scale down its operations to focus on renewable energy or transition its O&M business to a more asset-light model to free up debt requirements. This could potentially lead to a re-rating,” he adds.
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Lastly, Keppel Corp’s longer-term ROE target of 15% looks to remain intact.
As at end September 2020, Keppel Corp’s shipyards have resumed operations since the easing of the circuit breaker measures, with 15,000 workers back at their work sites.
Its recent order wins have also lifted its orderbook to above $4 billion, which is expected to support operations over the next two years.
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Through its property arm, Keppel Corp is also expected to divest over $7 billion of assets in the next few years, and proceeds are expected to be reinvested.
“A key part of its Vision 2030 is breaking down the silos within the Group to achieve OneKeppel. We believe this will enable the Group to achieve greater scalability, better synergies and new profit pools that might not be available to individual business entities, nudging it towards its ROE target,” says Chua.
“We value its Offshore & Marine division at 0.6x book value, about a 16% discount to peers. We value its Property segment at a 40% discount to RNAV and Infrastructure division at 12x FY21e earnings, in-line with peers. We also value M1 at 12x FY21e earnings, a slight discount to the sector average of 13x. We value Keppel’s stake in Sino-Singapore Tianjin Eco-city at 1.5x book value,” he concludes.
As at 12.06pm, shares in Keppel Corp are trading 5 cents lower or 1.0% down at $5.10.
