If FY2023 was described as “one of the most transformational years” for Keppel, then the recent FY2024 has been a “pivotal year,” says CEO Loh Chin Hua. This marks the first full financial year following the company’s restructuring from a diverse conglomerate with various sector units into a global asset manager and operator. The company has renewed its focus on infrastructure, real estate and connectivity while “hunting as a pack.”
Under its new business model, the company reported a net profit of $1.06 billion from continuing operations for its FY2024 ended Dec 31, 2024, up 5% y-o-y with contributions all-around. However, total profit attributable to shareholders fell by 76.9% y-o-y to $940.2 million, after FY2023 numbers were distorted by one-off gains from the divestment of its offshore and marine (O&M) arm. The figure also includes the effects of its legacy O&M assets.
Earnings from continuing operations in FY2024 fell by 6% y-o-y to $832 million, while 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 fair value losses from Keppel’s Seatrium shares compared to a gain in FY2023, higher financing costs and amortisation.
While Keppel’s FY2024 missed consensus estimates, Citi Research analyst Brandon Lee says this reflects its ongoing bid to build a stronger recurring income stream. This point was stressed by Loh, who noted that the quality of Keppel’s earnings has improved “significantly” over the past few years. Keppel’s recurring income in FY2024 stood at $766 million, representing 72% of its net profit from continuing operations, compared to 56% in FY2022 and 21% in FY2021, but lower than the 88% reported in FY2023.
Keppel’s infrastructure segment contributed 63% of its net profit with stable recurring income, while its connectivity division added 17% to the company’s overall net profit. This growth was bolstered by a 45% y-o-y growth in earnings.
‘Appropriate growth multiple’
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As part of its asset-light move, Keppel monetised $1.5 billion worth of assets in FY2024, an increase of 61% y-o-y. In November 2024, Keppel DC REIT divested two data centres for $280 million.
Since launching its asset monetisation programme in October 2020, the company has sold around $7 billion in assets, over halfway to its interim target of $10 billion to $12 billion by 2026. Approximately half of this amount came from Keppel’s real estate assets, excluding the $4.7 billion divestment by Keppel O&M in 2023.
Funds under management (FUM) increased by about 2.4 times to $88 billion in FY2024, up from $37 billion in FY2020. Asset management fees also increased by about 25% to $436 million from FY2020 to FY2024.
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Keppel also achieved its target of $70 million in recurring annual run-rate cost savings two years earlier in FY2024. It will further target another $50 million per annum to reach $120 million in annual cost savings by the end of 2026.
The company has steadily improved its return on equity as well, with this ratio from continuing operations reaching 10.1% in FY2024, excluding the effects of the legacy O&M assets, up from 7.9% in FY2022.
With the transformation, Loh notes that most analysts covering the company no longer assign a conglomerate discount. He hopes that the market will also assign an “appropriate growth multiple” to value Keppel’s new model of growing recurring income.
Acquiring Rigco for ‘good reasons’
Despite its overarching asset monetisation strategy, Keppel has demonstrated flexibility in adapting its plans. On Nov 19, 2024, the company announced it would take full control of Rigco Holding, an entity established to hold legacy rig assets following the merger of Keppel Offshore and Marine with Sembcorp Marine . Originally having a 10% stake, Keppel will now own 100% of Rigco after a selective capital reduction.
Since the talks with SembMarine, the offshore and marine sector has improved by “leaps and bounds”, says Loh.
He adds: “There are essentially good reasons why these rigs will be required. I think oil as a part of the energy mix will probably have a longer-term play compared to what some people might have thought even a few years ago.”
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Keppel is exploring various options, but for now, it plans to charter some of the rigs to generate income. When rates further improve, Keppel will look to attract external investors and possibly securitise the assets.
Capitalising on Bifrost
Besides trying to extract more value from rigs and other older assets, Keppel is actively investing in new ones. On Jan 24, Keppel announced that the Bifrost Cable System, jointly developed with Edge Cable Holdings USA, a unit of Meta Platforms, and PT Telekomunikasi Indonesia International, has been granted a subsea cable landing license by the United States Federal Communications Commission (USFCC).
The Bifrost cable system, extending over 20,000km, is described as the world’s first subsea cable to directly link Singapore to the west coast of North America via Indonesia, traversing the Java and Celebes Seas. When fully commissioned, it will be the highest-capacity high-speed transmission cable across the Pacific Ocean.
Keppel began the Bifrost project in 2021. It was assigned five of the 12 fibre pairs, and its share of the cost was US$350 million ($472.8 million). Keppel and its private fund co-investors own the five fibre pairs through a 40-60 joint venture.
Bifrost is expected to be ready for service in 2H2025 and is seen to give an internal rate of return (IRR) of 30% per annum for Keppel and its co-investors in its private funds, although the company qualifies this level of returns is a bit “unusual” as Keppel was able to lock in costs “very early on”.
For the newer cable projects, Loh expects returns in the mid-teens. Additionally, Keppel anticipates earning over $200 million in operating and maintenance fees per fibre pair over 25 years. “We are quite excited by this, and I think besides doing this for Keppel and our customers, this is also a very good way to continue enhancing Singapore’s position as a digital hub,” adds Loh.
Keppel is pursuing two more cable systems with over 30 fibre pairs connecting Southeast Asia to North Asia and beyond. While discussions with partners are ongoing, further details are not yet available.
“Our focus is to make sure that we are able to deliver Bifrost by the end of 2025 as we promised,” says Manjot Singh Mann, CEO of Keppel’s connectivity and M1 businesses. “Getting the ready-for-service status by the end of 2H2025 is what we are working towards. So, the two new cable systems are still in the pipeline, but this is the more immediate system that we want to deliver.”
In his Feb 6 note, Adrian Loh of UOB Kay Hian (UOBKH) observes that “unique assets” like Bifrost will gain “scarcity value” and secure a valuation premium, given that the USFCC has granted no new approvals in the past eight years.
In their Feb 6 note, Lim Siew Khee and Kenneth Tan of CGS International estimate that total contributions from Bifrost, including gains and operational and maintenance fees, will be $22 million in the current FY2025 and will grow to reach $86 million in FY2026. This will help lift Keppel’s profits booked under its connectivity business segment by 14% y-o-y to $235 million.
Dividend payout ratio
For FY2024, Keppel proposed a final cash dividend of 19 cents per share, bringing the year’s total dividend to 34 cents per share, the same as the preceding FY2023. However, with the distribution in the form of Seatrium and Keppel REIT shares, the total payout was worth $2.70 per share. The dividend for 2HFY2024 represents a payout ratio of about 55%, compared to the payout ratio of up to 75% in the last two half-years.
Keppel’s Loh adds, however, that the dividend payout ratio of 60% to 70% only occurred “in more recent times,” noting that the company used to pay 40% to 50% of its net profit in dividends.
He believes investors need not worry, as the company will continue to reward its shareholders and stakeholders as the business performs. Over the past three years, Keppel achieved an annualised total shareholder return of 34.8%, compared to the benchmark Straits Times Index’s return of 11.9%.
Analysts are generally optimistic about this stock. “The company’s outlook remains bright, with capital recycling news likely to focus on real estate, legacy rigs, Bifrost and possibly other fibre cable projects in the near to medium term,” says UOBKH’s Loh, who is keeping his “buy” call and $9.25 target price.
CGS International’s Lim and Tan are more bullish. They note that Keppel is on track to meet its divestment target of $10 billion to $12 billion by FY2026, which will underpin their projected dividend payout of 35 cents per share for FY2025.
Potential divestments, excluding M1’s consumer business and two rigs with an estimated market value of US$800 million, could enable Keppel to pay additional special dividends. For now, based on their sum-of-the-parts valuation model, Lim and Tan have raised their target price to $9.28, up from $8.78.
