Keppel: Business Update in Line With Expectations; Shares Undervalued

We keep Keppel’s BN4 fair value estimate at SGD 8.80 following its in-line third-quarter 2023 business update. While no detailed earnings numbers are given, cumulative nine months’ revenue of SGD 5.3 billion was up 5% year on year, making up 74% of our full-year forecast. Net profit from continuing operations was higher year on year, underpinned by a stronger contribution from infrastructure and connectivity segments. We believe Keppel remains undervalued currently and positive development on its asset monetization plans could continue to drive share price performance.

We think a highlight of the update is the progress of the asset monetization program, which exceeded SGD 5.3 billion since October 2020, ahead of the SGD 5 billion target by the end of 2023. The firm aims to increase this to SGD 10 billion to SGD 12 billion by 2026. We are positive on this as the proceeds can be used to invest in new initiatives and reward shareholders. While China’s real estate market is slowing, management thinks there are other opportunities to pursue for asset monetization. Keppel still has exposure to some legacy rigs through Asset Co. Given the improving offshore rigs market, the monetization of these rigs may take place sooner, leading to an earlier repayment of the vendor notes issued by AssetCo.

Keppel remains positive in China over the medium to long term. In addition to real estate, Keppel is also focusing on sectors benefiting from tailwinds and government support in China, such as energy transition, sustainable urban renewal, senior living, and data centers.

We think Keppel’s goals to transform into a global asset manager and focus on recurring income will continue to underpin the firm’s future earnings. The firm aims to increase its funds under management to SGD 100 billion by 2026 from SGD 53 billion as of the end of June 2023, which is achievable in our view. Keppel is now pursuing over SGD 13 billion in deals across infrastructure, real estate, and connectivity assets.