Great change ahead
We are pleasantly surprised by the S$0.15 DPS in 1H22 (vs. our expectation of S$0.12-0.13), despite a slower pace of monetisation (S$710m YTD).
This is on the back of a strong set of 1H22 results, 13% higher than our expectations, positively surprised by O&M, asset management and FV gains.
TP is raised to S$9.37 to reflect asset-light urban development strategy and ex-O&M. Catalysts: stronger-than-expected asset monetisation and dividend.
Potential for more dividend in 2H22F?
1H22 net profit incl. discontinued operations (O&M) of S$498m was 13% above our expectations, forming 58%/57% of our and Bloomberg consensus’ FY22F. Key surprises were stronger O&M profit of S$64m and fair value gains of start-ups such as Envision AESC Global, Fifth Wall, Vertex and Wavemaker, resulting in net profit of S$56m for corporate & others. Interim dividend of S$0.15 (1H21: S$0.12, 2H21: S$0.21) represents a 62% payout on 1H22 EPS. We take this as a sign of confidence and up our FY22F DPS to S$0.31 (historically, final DPS has been higher than interim) in view of KEP’s aggressive asset recycling strategy. This translates to a dividend yield of 4.7%.
S$710m of assets monetised YTD, still targets >S$5bn by 2023
More than S$3.6bn of assets have been monetised since KEP commenced its asset monetisation programme in Oct 20, with c.S$2.9bn received in cash. Management was confident about beating the S$5bn asset monetisation plan by end-2023, although the YTD pace has been somewhat affected by the current challenging market environment, especially in China’s property market. We believe one of the ways to achieve the target includes transforming Keppel Land into an asset-light urban space solutions provider with accelerated landbank monetisation though injection into Keppel-managed funds. This is
also a reason for us to relook at our TP basis for urban development (see Figure 1).
Asset management’s net profit grew 32% yoy
Asset management recorded S$155m (S$55m Keppel Capital, S$89m REITs & Trust, and S$11m private funds) in 1H22 net profit, reflecting 32% yoy growth but 16% hoh decline. Higher fee income and a greater share of fair value gains on investment properties and data centres contributed to the yoy increase. Asset management fees grew 14% yoy to S$126m. Keppel Capital has plans to launch new flagship funds such as the Keppel Core Infrastructure Fund and the Keppel Sustainable Urban Renewal Fund. Current AUM stood at S$42bn with a target to grow to S$200bn if S$15bn capital is redeployed from asset monetisation over time. Key risk: prolonged global recession.
Raise our SOP-based TP to S$9.37 to reflect asset-light strategy
Our TP largely comprises urban development (S$4.38), accretion from O&M divestment (S$1.79), asset management (S$2.52) and connectivity & infra at S$0.69/share. We think in the next 3-5 years, KEP is on track to transform into a global asset manager with different asset classes in real estate, infra, data centres and alternative assets. Reiterate Add.
