Middle East investors, according to analysts, accounted for around 15.5% of the private fund capital raised by Keppel in FY2023 to FY2025. Further interest from these investors may be impacted. In addition, the two-month delay in completing Keppel’s sale of M1 to Tuas suggests possible delays in its asset monetisation bid amid this volatile environment. They now assume that Keppel will complete only $750 million in asset sales per year in FY2026 and FY2027, down from their earlier projections of $1.5 billion and $2 billion, respectively.
“This increases the risk of a larger RNAV discount and puts consensus DPS under pressure, given Keppel’s reliance on distributing 10%–15% of divestment proceeds. A dividend yield above 4% has been a key pillar of the bullish Keppel thesis,” warns Song and Khi. “With the valuation gap to peers narrowing and elevated positioning, further multiple re-rating in the near term is limited, in our view.”
Noting that Keppel has outperformed the Straits Times Index (STI) significantly over the past year, Song and Khi recommend that investors “move to the sidelines”.
Nonetheless, they flag that Keppel’s earnings from the core infrastructure business will account for an estimated 57% of Keppel’s FY2026 ebitda.
See also: Tai Sin Electric gains momentum in ASEAN amid construction and data centre boom
With around two-thirds of the generating capacity spoken for by long-term contracts, underpinned by hedged gas prices, a diversity in supplies, plus contribution from a newly-completed power plant, Keppel’s power business should remain resilient.
Within Keppel’s sprawling business, potential upside may come from the divestment of a newly completed office building, Keppel South Central, valued at $1.4 billion.
All in, Song and Khi have raised the discount on Keppel’s private funds, REITs and investment properties from 10% to 20%. They have also lowered their projected fund under management growth from 7% to 4% over the next three years, leading to lower patmi and distribution forecast.
See also: Tai Sin Electric is powering up Asean, benefiting from both construction and data centre boom
Their new target price of $12.00 for June 2027 implies a FY2027 P/B of 2.1 times, which they feel is justified by the expected improvement in ROE to around 11%.
JP Morgan’s downgrade of Keppel right after it became more cautious on certain other blue-chip counters and the Singapore market as a whole.
On March 16, Song and Khi downgraded both City Developments (CDL) and UOL Group from “overweight” to “neutral”. From an earlier June 2027 target price of $10.75, they now figure CDL is worth $8.70.
“While CDL’s earnings should recover, the Iran conflict makes asset monetisation to close the book value discount more challenging,” warn the analysts.
Furthermore, with higher oil prices and recession risks, CDL’s hotel business might also be affected.
Nonetheless, they say this downgrade is a “tactical” move. “Investors should revisit CDL if the Iran conflict resolves, asset monetisation improves, or CapitaLand Integrated Commercial Trust’s [CICT] strategic review, likely by mid-2026, delivers positive outcomes,” they add.
UOL, meanwhile, has been one of the top performers of the STI year to date, thanks to strong residential sales and its recovering hospitality business. Additional funds from government measures to boost the market will also help support UOL.
For more stories about where money flows, click here for Capital Section
However, the heightened risk environment could slow asset monetisation via REITs or funds. “Amid softer macro fundamentals and fading momentum factors, we see the stock as more fairly valued at current levels, with our revised price target implying 0.69 times P/B, in line with the historical mean,” the analysts figure.
The key upside risk is a faster resolution of the Iran conflict, which would reverse hospitality and residential uncertainty, with further potential downside in an extended Middle East conflict, according to Song and Khi, who now value the stock at $9.55, down from $12.05.
More recently, in its March 26 note, JP Morgan observes that Singapore stocks have outperformed regional peers since the start of the current round of fighting. However, JP Morgan warns that if an oil supply shock becomes a global drag on growth, this outperformance may not hold.
Citing its own bottom-up analysis, JP Morgan paints a potential 8% EPS impact and valuation compression in a bear-case scenario, with the most sensitive sectors including airlines, office and hospitality REITs, developers and banks.
“Although de-escalation talks have started, profound questions remain about how quickly energy flows can be restored, how much stability can be sustained, and how global demand will evolve,” says JP Morgan, lowering its STI target from 6,000 points to 5,500 points.
“That said, government support, high dividend yields and a resilient currency should limit the downside for Singapore stocks, in our view,” says JP Morgan, whose top Singapore picks are ST Engineering, Singapore Telecommunications, DBS Group Holdings, Singapore Exchange Group, CapitaLand Ascendas REIT and CICT.
