In his opening remarks at the group's results call, Keppel's CEO Loh Chin Hua notes that earnings improved "meaningfully" due to "stronger recurring income" and "disciplined execution" across Keppel's platforms and divisions.
Loh says that its flagship funds are also "gaining traction" with about $4.9 billion of funds under management (FUM) raised, bringing Keppel closer towards its FUM target of $100 billion by end-2026 and $200 billion by end-2030. The recently raised funds include the first closings for the Keppel Education Asset Fund II and Keppel Data Centre Fund III, and the "substantial capital commitment" for its sustainable urban renewal strategy.
Including its legacy offshore and marine (O&M) assets, Keppel's 1QFY2025 net profit more than doubled y-o-y due to lower losses from legacy assets. According to chief financial officer (CFO) Kevin Chng, the narrower losses were mainly due to positive fair value changes in the holdings of Seatrium shares held by Keppel. "That was a large component of the change year on year."
Loh seems less keen to discuss the O&M assets, however, stressing that the market should look at Keppel as a new group, which is "performing quite well". "We continue to gain traction in all the areas that we have told the market, in terms of fundraising, in terms of recurring income," he says.
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'Laser focused' on asset monetisation
At the same time, Keppel remains "laser focused" on hitting its asset monetisation target of between $10 billion and $12 billion by end of 2026. Since embarking on this move to lighten its balance sheet in October 2020, Keppel has divested about $7.2 billion worth of assets thus far. The $347 million divested year-to-date includes a 30% stake in Tianjin Fulong Property Development, the developer of Keppel's Northern District Project in Tianjin Eco-City, for about $93 million, which was announced on April 23.
According to Louis Lim, CEO of Keppel's real estate segment, despite the stress now faced by China's real estate market, Keppel will still be able to book a profit for the sale of the Fulong project. This is because Keppel's landbank, especially in China, is held at historical cost. Keppel is also "in advanced stages" of talks to sell another $550 million worth of real estate in India and Singapore, says Lim.
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CGS International analyst Lim Siew Khee, who has been covering Keppel for years, believes that some of the projects up for sale are the Singapore mall I12 Katong or the Mumbai Urbania Township, among others.
"We believe that by end-2025, Keppel is likely to close above $1 billion of asset monetisation, including [the] partial sale of M1 and RigCo," Lim writes in her April 24 report. Of the assets divested in the quarter, CGSI's Lim estimates some $245 million of gains to be recognised from these.
During the call, Loh acknowledges that with oil prices recently coming off, sentiment has been impacted in the O&M business. Instead of trying to offload related assets under such market conditions, Keppel is seeing how it can put more of its rigs to work and continue to ensure cash flow from these assets in the meantime. "The jack-up rigs that we have completed remain contracted, and they are also being paid their day rates as we speak," says Loh. "We are still receiving enquiries, both for potential monetisation, but also more and more for potential day rate charters."
Plans for Seatrium's shares
In April, Keppel's segregated account arrangement with Seatrium, a legacy of the combination of Keppel O&M and the former Sembcorp Marine, was terminated. This released around $290 million in cash and 63.36 million Seatrium shares as at March 31, which Keppel may deploy as it sees fit.
This naturally led to the question of whether Keppel will be distributing the cash and shares via special dividends or a distribution in specie of Seatrium shares. While there are no plans as of yet, Keppel has been "very actively" ensuring that its shareholders have been "adequately rewarded" as it implements its transformation, and will take these suggestions into account. However, the primary focus remains on ramping up their asset monetisation plans and on executing on the new Keppel. "And then at the end, we will see how best we can position ourselves for growth, to seize opportunities, as well as to reward our shareholders," says Loh.
Cable system on track
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In Keppel's connectivity space, Manjot Singh Mann, CEO of Keppel's connectivity segment and CEO of M1, says this unit has seen "extremely robust" growth in its enterprise revenue. He adds that enterprise growth in terms of contributions to the business' revenue is now close to about 45% with growth expectations in Singapore, Malaysia and Vietnam.
Beyond its recent acquisition of an information and communication technology (ICT) player in Vietnam, Mann adds that he sees the segment's organic business growing as well. Thanks to "extremely robust and strong" demand for capacity due to artificial intelligence (AI) applications, there is no reduction in data centre demand too, he adds.
Keppel says it continues to make "good progress" with its Bifrost Cable System, with cable-laying operations 92% completed as at the end of March and ready to be of service in 2H2025.
Meanwhile, Keppel is already looking ahead and evaluating two other systems. In its results presentation, Keppel said it was pursuing two more cable systems with over 30 fibre pairs connecting Southeast Asia to the rest of Asia and beyond.
Limited impact from tariffs
In his remarks, Loh says the direct impact from US tariffs is expected to be "limited", as Keppel is not engaged in the manufacturing or export sectors. "However, a trade war would be highly detrimental to the international economy, and could affect us indirectly through higher supply chain costs, reduced market confidence, exchange rate risks and the pace of asset monetisation," he notes.
"[Nevertheless], Keppel provides many essential services, which, as seen during the Covid-19 pandemic, generate stable recurring income," he adds.
On whether Keppel is seeing a change in demand or sentiment from its limited partners (LPs), which can potentially affect its FUM targets, Christina Tan, Keppel's chief investment officer (CIO) and CEO of its fund management arm, says these are "early days" with everyone still trying to figure out what is happening or what will happen.
"From our discussions with investors, some are quite conservative, and so they are more cautious. But in general, I think for the larger pension plans and sovereign wealth funds, because they are very well established, and they look at investments on a longer-term horizon, they are actually quite well-positioned to take advantage of new opportunities that may arise from the volatility in the market," she says.
"But for some of the smaller pension funds that we talk to, there is a bit of a denominator impact as well, because their allocation to real assets suddenly becomes a bit overweighted because the equities market dropped," she adds, noting that the group is ultimately seeing "good traction and demand" from the bigger players and sovereign wealth funds that it is working with.
In the longer term, Loh believes that countries in Southeast Asia still have "very strong fundamentals" and are therefore a healthy market to be in. "I do not believe that the current tariff discussions will impact their longer-term fundamentals, so we will continue to be looking at these markets as markets that we will continue to invest in, not just in real estate but in infrastructure, in connectivity, etc.," he says.
Analysts cheer 'strong' quarter
Analysts from CGSI, DBS Group Research, UOB Kay Hian and PhillipCapital have maintained their "add" and "buy" calls on Keppel, while Morningstar has maintained its "four star" rating. The four houses have maintained their target prices at $9.28, $9.00, $9.25 and $8.60 respectively.
UOB Kay Hian's Adrian Loh likes Keppel's higher net profit, stable infrastructure numbers and traction in its asset monetisation efforts, which was "one of the key highlights". To him, Keppel currently trades at an FY2025 P/E of 11.6 times and P/B of 11 times with a prospective yield of 5.7%.
"We view these investment metrics as inexpensive, especially considering the company's more stable earnings stream given the divestment of its offshore marine business. In 1QFY2025, more than 80% of the company's net profit came from recurring income (excluding legacy offshore & marine assets)."
On the termination of the segregated account, Loh posits that this could be paid out of a special dividend, assuming that the shares are monetised. Based on Seatrium's closing price of $1.93 as at April 24, this equates to some 23 cents per share attributed to Keppel, he says.
"However, we highlight management's comments that it would look to balance shareholders' desire for income versus the company's growth and asset recycling strategy," he adds.
The DBS team commended Keppel's asset monetisation figure and described Keppel as an "underappreciated defensive play" amid the volatile market with over two thirds of earnings from the energy and connectivity segments.
"Despite possible indirect impacts from trade wars on supply chain cost, forex and asset monetisation, which are too early to quantify, management remains confident to weather through the uncertainties," says DBS. "The asset monetisations pipeline also provides [a] cushion to downside risk from real estate valuation and asset management fees."
Morningstar's Xavier Lee believes Keppel's shares are currently "undervalued". He expects the group to continue remaining resilient even amid global trade tensions given its "strategic focus on essential services such as infrastructure, connectivity, and data centres".
CGSI's Lim believes that the group will post earnings upside to her full-year group net profit estimate of $864 million.
PhillipCapital analyst Paul Chew believes there is "visible" earnings growth from 2HFY2025 onwards from several projects, which is namely the leasing of Keppel South Central, commissioning of Bifrost cables and Keppel Sakra Cogen Plant.
However, he notes Keppel's "soft" mobile consumer, with mobile subscribers for M1 continuing to slide. In the 1QFY2025, M1's postpaid subscribers fell by 6.6% y-o-y to 1.81 million due to intense price competition and customer churn. "Ebitda grew on a y-o-y basis due to the strength of the enterprise operations securing growth in cloud solutions (hybrid, security, migration)," Chew notes.
Overall, the analyst likes Keppel for its operational strength, with most divisions expected to see growth as new projects are commissioned. That said, the weakest segment is the group's consumer mobile. "We view the current weakness in M1's consumer and upcoming spectrum purchase as a trigger for monetising this business," Chew surmises.
"On the disposal of RigCo, lower oil prices have impacted sentiment. Nevertheless, Rigco continues to receive enquiries, and day rates for the rigs are stable. The focus is to improve the cash flows of RigCo with potential monetisation down the road," he adds.
Looking ahead, Chew sees sentiment amongst the smaller pension funds being more muted due to asset allocation reasons while weakness in public equities may elevate the allocation of real assets.
