Infrastructure to lead the way
- 3Q23 infrastructure profit was up significantly yoy, with recuring income trend intact (1H23 recurring profit from infra was S$307m).
- YTD asset monetisation was at S$865m (2022: S$1.5bn), but we see acceleration in monetisation of asset co rigs given the strong rig market.
- Reiterate Add and SOP-based TP of S$8.70. It is trading at c.0.9x FY23F P/BV and offers decent cash dividend yield of 5.7% in FY23F.
- Potential re-rating catalysts: significant acquisitions/asset monetisation.
Infrastructure earnings significantly higher yoy
Keppel Corporation’s (KEP) 3Q23 revenue of S$1.5bn was broadly in line with our expectations. 9M23 revenue of S$5.3bn formed c.74% of Bloomberg’s FY23F consensus. No profits were disclosed in KEP’s 3Q23 business update. However, it said that infrastructure earnings growth continued in 3Q23 and 9M23, underpinned by its robust integrated power business. KEP said 100% of its contracted power is locked in with fixed or indexed electricity price plans for the next two years. We estimate that 60-65% of its generating power portfolio is locked in, with the remainder subject to the merchant market.
Asset-light energy importer
KEP plans to contribute to ~35% of Singapore’s 4 GW low-carbon electricity importation target. KEP has imported renewable energy of >260GWh to date, since the commencement of the 100 MW agreement as part of the Lao PDR-Thailand-Malaysia Singapore Power Integration Project in Jun 2022. In 9M23, KEP’s infrastructure business obtained conditional approvals from Singapore Energy Market Authority to import another 1 GW of low-carbon electricity from Cambodia and 300 MW of solar power from Indonesia. The economics of this is being worked out, with detailed engineering, development and funding requirements from investors across the region still in the early stages, according to the company. However, KEP reaffirmed that its focus on being ‘asset light’ is key.
Will asset co be the low-hanging fruit?
KEP has achieved S$5.3bn of asset monetisation since Oct 2020, exceeding its S$3bn5bn target. YTD asset monetisation of S$865m included c.S$323m of dividend in-specie of Keppel REITS. We think the slower pace of monetisation may be due to the high interest rate environment and weak real estate market in China. KEP is still keeping to its asset monetisation plan of S$10bn-12bn by 2026F. We believe the pace of asset monetisation for the rigs in the asset co and gradual repayment of the c.S$4.3bn vendor note receivables to KEP could accelerate in the next few months given the strong rig utilisation and day
rates (Figs 7-9).
What are we buying into?
KEP is pursuing c.S$13bn of deals across segments (unchanged vs. 1H23). Potential catalysts: asset recycling to double its FUM to S$100bn by 2026F. Key risks: weak macro that weakens fund performance and slows the pace of capital recycling.
