1H22F: Powered up
- We expect KEP to report 1H22F net profit of c.S$440m (+c.48% yoy) despite the weak macros. It is scheduled to release its 1H22 results on 28 Jul.
- Environmental division likely to see a profit turnaround, benefiting from strong Singapore power prices in infrastructure and execution of O&M orders.
- KEP trades at CY22F P/BV of 0.9x (-0.5 s.d. below its 6-year average. Catalysts: aggressive asset recycling and earnings-accretive M&As.
Focus on longer-term strategy
KEP is due to announce its 1H22F results on 28 Jul. We forecast revenue of c.S$5bn (+35% yoy, flat hoh) despite uncertainties in the macro environment. 1H22F net profit could hover around S$440m, up 35% yoy but down 52% hoh; the latter due to lesser divestment gains. Recall that there was a S$315m fair value (FV) gain on investments in 2H21, including S$277m in its electric vehicle battery business under Envision AESC. We believe investors’ focus will be on KEP’s strategy post-completion of the SMM-KEP O&M merger which we expect would be completed by end-2022F. We estimate KEP to have monetised c.S$500m of assets in 1H22 with an accumulated asset monetisation of S$3.5bn since Sep 2020 (S$5bn target by 2023). Maintain Add and SOP TP of S$7.20.
Energy and environment riding on infra power prices
We think KEP’s infrastructure segment continued to be its key driver in 1H22F, buoyed by strong electricity and gas prices. Uniform Singapore Energy Price (USEP) averaged at S$324/MWh in 1H22, 3x higher than 1H21’s S$95/MWh and 2H21’s S$295/MWh. We forecast 1H22F infra revenue at c.S$2.5bn, up 88% yoy (1Q22: S$994m) and net profit at c.S$116m on the back of stronger margin from higher ASPs. KEP’s offshore & marine (O&M) segment also likely saw narrowing losses on a business as usual (BAU) basis – we expect more work to have carried out as labour issues gradually ease. We estimate O&M revenue hit S$1.3bn in 1H22F (+65% yoy, +6% hoh) with the potential of positive EBIT and breakeven at net profit level. Recall that in 1Q22, KEP said the segment’s net loss declined significantly yoy with positive EBITDA (no details disclosed). Ex chartering contract, KEP O&M has secured c.S$330m of new contracts YTD.
Asset management, connectivity cushion urban development
Revaluation gains aside, we think the lockdowns in China likely resulted in continued weakness in home sale/completion. We estimate 1H22F urban development revenue to be weaker at c.S$420m (-54% yoy, -42% hoh) with S$165m net profit (-41% yoy, -66% hoh). Our channel checks found that Keppel Land’s projects have not faced refusal of mortgage repayment issues. We expect asset management fee income to continue to grow as in 1Q22 (+70% yoy in fees to S$71m). We forecast S$135% net profit from asset
management in 1H22F (+15% yoy, -27% hoh). Its connectivity segment likely saw 1H22F net profit of S$33m (+21% yoy, -11% hoh) on the back of border reopenings. Downside risks to our Add call: delayed completion of its O&M merger with SMM, general drag from a global macro slowdown.