Strategy gradually bearing fruits
? We see signs of KEP’s strategy bearing fruit with divestment of Keppel
Logistics, Keppel Infra decarbonisation solutions and asset monetisation.
? 1Q22 profits were not disclosed but KEP said it rose yoy. All segments grew
yoy other than Urban Development.
? All eyes are still on the definitive agreement with Sembcorp Marine on the
merger of KEP O&M by 30 Apr. Maintain Add and SOP TP of S$7.20.
Revenue up 9% yoy, down 34% qoq, net profit higher yoy
KEP’s 1Q22 revenue of S$2.1bn (+9% yoy) was in line with our estimates at 24%/25% of
our FY22F and consensus. Revenue across all segments grew yoy except for Urban
Development. Keppel Infrastructure delivered the highest revenue at S$994m (+57% yoy,
-32% qoq), mainly due to higher power and gas prices and sales. KEP monetised S$332m
of assets in 1Q22 and exceeded S$3bn asset monetisation since Sep 2020 (S$5bn target
by 2023). Net gearing stood steady at 0.69x.
Keppel Infra rides on secular trends
Strong electricity and gas prices could be the key driver for Keppel Infra’s profit to improve
strongly yoy. Assuming a net margin of 3% (average since 1H20) with no exceptional items,
we estimate Keppel Infra’s net profit for 1Q22 could be S$30m, the highest quarter since
1H19. Keppel Infra is also participating in the Energy Market Authority’s Request for
Proposal (RFP) for low-carbon power import licences in Singapore, as part of the nation’s
efforts to decarbonise the power sector.
Urban Development the weakest but expected to improve
Urban development’s revenue was down 59% yoy and 47% qoq to S$209m. Keppel Land’s
net profit for 1Q22 was lower yoy due to lower contributions from China property trading
projects and absence of gains from enbloc sales. Keppel Land sold 540 homes in 1Q22
vs. 1,360 homes in 1Q21. Specifically, China’s home sales were down 56% qoq to 220
and Vietnam’s down 97% qoq to 20 in 1Q22. The trend should reverse as more projects
are slated to launch in the quarters ahead. There was c.S$4.4bn in sales to be recognised
across China and Vietnam over 2022-2025.
Hopeful for more asset monetisation in Keppel O&M
Revenue for O&M at S$503m (+22% yoy, -38% yoy) formed c.28% of our FY22F. The
segment’s net loss reduced significantly yoy with positive EBITDA. It secured S$76m of
new orders in 1Q22 with order book at S$4.8bn (37.5% renewable projects). The segment
is operating as BAU as it will take some time to obtain regulatory approvals until full closure
of the merger with SMM. Management sounded confident about closing some deals in the
near term. Enquiries for bareboat and sale of 16 legacy rigs have also increased. The final
plans for these rigs will be announced together with the merger. We estimate about
US$3.8bn of market value for these rigs (book value: S$2.9bn ex receivables).