4Q21F: Generous dividend

■ We expect KEP to report c.53% hoh increase in net profit in 2H21F (on 27 Jan) to S$459m, boosted by divestment gains of c.S$396m.
■ KEP clocked in S$1.6bn of proceeds in 2H21F from asset recycling efforts, paving way for stronger final DPS of S$0.16-0.18 (FY21F: S$0.28-S$0.30)
■ Reiterate Add with higher SOP TP of S$7.20 as we roll over to FY23F.
■ KEP trades at 0.85x and 11x CY22F P/BV and P/E, -1 sd below its historical average. Catalyst: aggressive asset recycling and earnings accretive M&As.

Cashing in S$1.6bn in 2H21F; expect generous dividend

Recall that KEP announced in Sep 2020 its asset monetisation target of S$3bn-5bn by end-FY23F. Since Oct 20, KEP has unlocked c.S$2.9bn in assets, including S$2.7bn in 2021 (Figure 2), well ahead of its initial target. In particular, w e estimate c.S$1.6bn worth of asset monetisation was completed in 2H21, with the biggest one being the transfer of network assets by M1 to KDC REIT (S$580m). As SPH acquisition is unlikely to go through, we think KEP may reward shareholders with higher dividends from the proceeds above, while keeping a lookout for M&As. Assuming 19-20% of S$1.6bn is distributed, we believe KEP could announce a final DPS of S$0.16-0.18 bringing FY21F DPS to S$0.28-S$0.30 or dividend yield to 5.2%-5.6%, higher than its historical 5-year range of 3.5%. We lift our FY21F DPS to S$0.28 (from S$0.25), or 67% payout (vs. historical average of 48% in 2013-2019, excluding special circumstances year in 2017).

2H21F to see divestment gains of c.S$396m; net profit +53% hoh

KEP will report its 2H21 results on 27 Jan 2021. We expect KEP to report c.53% hoh increase in net profit to S$459m, boosted by divestment gains of c.S$396m. By segment, w e expect Urban Development to register a net profit of c.S$352m (c.S$197m of divestment gains). This is accelerated by the earlier-than-expected completion of the divestment of its 40% stake in Nanjing Jinsheng Real Estate in Dec 21 (w orth S$362m and gains of c.S$59m). The absence of impairment for KrisEnergy and restructuring gain from
Floatel should yield narrow er losses for the Energy and Infrastructure segment (-S$34m). Energy division announced c.S$310m of contracts in 2H21 (FY21F: S$3.4bn) with order book likely at c.S$5.4bn as at end-2021 (9M21: S$5.5bn). With more equity raised (S$2.9bn in 9M21), we estimate Asset Management profit for 2H21F was 13% higher hoh at S$132m, making the division the second largest earnings contributor.

Awaiting definitive agreement with SMM; Reiterate Add

We raise our FY21F EPS by 10% to reflect the divestment gains and lift our FY22F-23F EPS by 3-4% on stronger energy & infrastructure and connectivity profits. The next major milestone for KEP is the finalisation of the proposed merger with SMM which w e believe may be concluded by 1H22F. Our SOP TP is higher at S$7.20 as w e roll forward our valuations to FY23F. Our TP implies c.15x CY22F P/E, in line with its 2015-2018 average trading band. Key risks: poor capital deployment and significant impairment losses.