Strong and sturdy
- 1Q22 net profit higher y-o-y on improved performances across all segments except Urban Development
- Property divestments and launches to pick up towards 2H22
- O&M seeing stronger project pipeline and rig sale potential; yard combination agreement by end-Apr
- Reiterate BUY; TP S$6.90
Investment Thesis:
Yard combination. Keppel’s share price has performed well, rising 26% since end-Jan following a strong set of FY21 results, further boosted by generous dividend and share buyback exercise. The widely anticipated definitive agreement relating to the yard merger, which would streamline Keppel’s operations to focus on its asset light businesses and sustainable solutions, should re-rate the stock further when formalized by end Apr-2022.
Accelerating clean energy and decarbonisation drive. Keppel Is an ESG leader in corporate governance, safety, human capital management, and clean energy. It has gained traction in renewable/gas solutions that now contribute ~40% to O&M’s orderbook. Moving up the renewable value chain, Keppel will operate its first solar farm with 500MW capacity in 2023 and aims to raise its renewable energy portfolio to 7GW by 2030. It has established partnerships with various players like StarCharge and AESC to pursue opportunities in electric vehicle (EV) infrastructure including EV/storage batteries, deepening its foothold in clean energy. It is also studying the hydrogen energy value chain, from production to storage and transportation as well as developing decarbonisation solutions.
Valuation:
SOTP-based TP of S$ 6.90 implies 1.05x FY22F P/BV, which is 0.5SD below its 5-year mean. Our TP is derived based on: (1) Urban development valued at 0.9x P/BV, implying 25% discount to property RNAV; (2) DCF valuation for Tianjin Eco-city with 10% WACC; and (3) connectivity/asset investment/infrastructure/others at 1x P/BV.
Where we differ:
Keppel’s huge landbank of ~5m sqm is held at low cost. Half of this is under development, progressively unlocking its RNAV over the next three to five years. Of the undeveloped landbank, 30% is earmarked for projects in Tianjin Eco-city, which is not reflected in our RNAV.
Key Risks to Our View:
Lower-than-expected en-bloc sales pose downside risks to forecast. En-bloc sales are lumpy by nature, forming more than half of property profit in 2018 but only 10% in 2019.