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Keppel revenue back at pre-Covid-19 levels, asset recycling and higher final dividend ahead: analysts

Jovi Ho
Jovi Ho11/1/2021 02:14 PM GMT+08  • 4 min read
Keppel revenue back at pre-Covid-19 levels, asset recycling and higher final dividend ahead: analysts
At Keppel’s 9M2021 business update, the group said revenue grew 14% y-o-y to $5.5 billion, higher than 9M2019’s $5.38 billion.
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Look forward to asset recycling at Keppel Corporation, as revenue is back at pre-Covid-19 levels, says CGS-CIMB Research analyst Lim Siew Khee.

In an Oct 28 note, Lim is maintaining “add” on Keppel with an unchanged target price of $6.90, which represents a 27.8% upside.

No profit numbers were provided during Keppel’s 9M2021 business update but the group said revenue grew 14% y-o-y to $5.5 billion, higher than 9M2019’s $5.38 billion.

Revenue for energy and environment accounted for the biggest chunk, at $3.29 billion, up 15% y-o-y, thanks to recognition of a certain environment project, although EBITDA was weaker due to deferred profit recognised for the project as well as lower operating results in the power and gas segments, writes Lim.

Urban development was the second largest revenue contributor at $1.2 billion, up 23% y-o-y. Connectivity revenue was stable, growing 2% y-o-y, at $903 million, with contributions from logistics and data centre M1.

“Completion of the SPH acquisition by November 2021 should allow Keppel to aggressively kick start asset recycling activities, including securitisation of its student accommodation business, and divestment of non-core investments (e.g. iFAST, media fund),” writes Lim.

However, a surprise offer for SPH was proposed on Oct 29, potentially upsetting Keppel’s bid.

See: With a surprise all-cash potential bid, what does Temasek-linked consortium see in SPH?

See also: With potential SPH merger, analysts ask if Keppel REIT is the hunter or the hunted

See also: Keppel Corp announces 'sharp reversal' in 9M2021 net profit, 14% growth in revenue y-o-y

DBS Group Research analyst Ho Pei Hwa highlights the new offer in an Oct 29 note.

“SPH has received a counter bid from Cuscaden Peak Pte Ltd, a consortium comprising Hotel Properties Limited (HPL), CLA Real Estate Holdings Pte Ltd (CLA, under Temasek Holdings), and Mapletree Investment Pte Ltd. Cuscaden proposed similar offer price of $2.10 for each SPH share, but fully in cash (vs Keppel’s one third in cash, two third in Keppel REIT and SPH REIT units). This creates some uncertainties on the deal and timeline,” writes Ho.

Ho is reiterating her “buy” call on Keppel with a target price of $6.20.

All eyes are now on the finalisation of yard combination details. At the end of June, Keppel entered into a non-binding MOU to combine Keppel Offshore Marine’s (KOM) OpCo with Sembcorp Marine (SMM) for consideration of up to $500 million in cash and shares in the combined entity, which will be distributed as dividend-in specie to shareholders post transaction.

“This is a positive development, streamlining Keppel’s operations to focus on its asset light businesses and sustainable solutions. Management provided an update that the negotiations are progressing steadily and they are hopeful to achieve definitive agreement by the end of the year as previously guided or early 2022,” says Ho.

UOB Kay Hian Research analyst Adrian Loh, too, points to the upcoming merger of SMM and KOM in his Oct 29 note.

“[The] merger may complete as soon as end-2021, although the timetable may slip into 1H2022, according to comments by management during the analyst call,” writes Loh.

Loh is maintaining his “buy” call on Keppel with a raised target price of $6.74 from $6.48 previously.

“Importantly, Keppel has received more enquiries for bareboat charters of its legacy rig assets on the back of the bullish oil price environment in the past few months. As a result, the company may announce bareboat charter contracts in the next few months as current rig day rates would allow KOM to generate a profit,” writes Loh.

“In the meantime, Keppel will continue to streamline operations at KOM and thus far has reduced overheads by $90 million this year, resulting in positive EBITDA and a net profit for 9M2021, compared to a net loss in 9M2020. Its net orderbook as at end-9M2021 was $5.5 billion,” Loh adds.

During the analyst briefing, management pointedly commented that it will look to “reward shareholders for their continued confidence” in the company, notes Loh.

For more stories about where the money flows, click here for our Capital section

The company’s 1HFY2021 dividend of 12 cents per share was “significantly higher” than the 3 cents per share paid in 1HFY2020, says Loh. “Thus, we believe that there is upside to our current full-year DPS estimate of 20 cents per share.”

As at 2.01pm, shares in Keppel Corporation are trading 2 cents lower, or 0.37% down, at $5.36.

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