<Results Analysis> All stars are aligned
- FY21 earnings beat expectations, aided by fair value gain from investments
- Declared generous final DPS of 21 Scts, bringing full-year payout to 33 Scts or 6% yield
- Activate S$500m share buyback purchase, signalling conviction on company’s prospects
- Reiterate BUY; TP lifted to S$6.90
Keppel’s earnings stage a strong rebound in FY21, delivering net profit of S$1bn, vs. net loss of S$506m a year ago. Operational improvement seen across segments. This beats expectations of ~S$700m, aided by fair value gain (mark-to-market) on the investment portfolio, driven largely by higher valuations of unquoted investments, in particular, Envision AESC Global Investment L.P in 2H21.
Improving recurring income. While a big chunk of profits is from property en-bloc sales and divestment gains, recurring income has also been improving, from S$220m in FY20 to S$291m in FY21.
As Keppel is stepping up efforts to beef up recurring income contribution, profits in the next two years will continue to be supported by its ongoing asset monetisation exercise, where they aim to divest assets worth more than S$2.1bn by 2023 and exceed its S$5bn target.
Net gearing drifted lower to 0.68x as of end-Dec 2021, from 0.85x at end-Jun 2021, and 0.91x at end-2020, thanks to the monetisation of assets worth S$2.9bn since Oct 2020, receiving ~S$2.7bn in cash.
Dividend surprise – declared 21 Scts final dividend. Keppel declared a final DPS of 21 Scts, bringing the full-year payout to 33 Scts, translating to 6% yield. This implies a payout ratio of ~45% (excluding impairment related to KrisEnergy’s liquidation, which was ringfenced). Going forward, we shall expect ~4% dividend yield on a similar payout of ~45%, a midpoint of management’s 40%-50% guidance.
Share buyback programme a vote of confidence. Together with the results, Keppel announced the establishment of a S$500m share buyback programme. This allows Keppel to purchase its shares, particularly when it is deemed undervalued, signalling conviction on the company’s prospects. The treasury shares will be used in part for the annual vesting of employee share plans, and also as possible currency for future merger and acquisition (M&A)
activities under Vision 2030. The programme could take more than a year to complete depending on market conditions and share price valuation.
Yard combination definitive agreement expected by 1Q22. Management updated that the yard combination discussion has progressed well. Due to the complexity of the transactions, it may take another one to two months before a definitive agreement could be signed by the end of 1Q22. Management stresses that the exercise is mutually beneficial.
SPH acquisition offer – the ball is in SPH’s court. Keppel has done all they could on their end. It now awaits SPH’s call for an EGM to vote for the proposed Scheme of Arrangement.
Remain positive on China property market. While sentiment on China’s property market is hit, management remains positive about the longer term outlook. Underlying demand remains fairly strong. Keppel is in a unique position to grow, especially as local developers shift to partner with foreign developers to access funding.