Date: 25 October 2024
Broker: UOB Kay Hian Private Limited
Company Overview
Keppel (KEP SP) is an asset manager and operator with four core business segments: energy & environment, urban development, connectivity, and asset management. It has a diversified portfolio and is well-positioned to capitalize on emerging opportunities in various sectors.
Financial Performance and Stock Data
- Share Price: S$6.47
- Target Price: S$8.89 (Upside of 37.4%)
- Market Capitalization: S$11,665 million (US$8,973 million)
- Shares Issued: 1,774.7 million
- 3-Month Average Daily Turnover: US$19.2 million
- 52-Week High/Low: S$7.45/S$5.76
- Major Shareholder: Temasek Holdings (21.2%)
- FY24 NAV/Share: S$6.10
- FY24 Net Debt/Share: S$5.29
Key Business Updates
Strong Business Execution
Keppel’s 3Q24 update highlighted strong execution with a significant 68% year-on-year (yoy) increase in asset management fees to S$299 million for 9M24. Despite no detailed revenue and profit figures, the company reported stable net profit and a 14% yoy growth in recurring income for the same period.
Focus on Data Centres (DCs)
Data centres were a major focal point in Keppel’s business strategy. The company emphasized its unique ability to generate revenue through multiple streams, including development fees, asset management fees, and disposal gains. Keppel aims to expand its DC funds under management (FUM) from S$9 billion to S$19 billion, while increasing its DC capacity from 650 MW to 1.2 GW. The Asia-Pacific region, especially Malaysia, Indonesia, and India, are seen as key growth markets.
Expansion in Power Sector
Keppel plans to grow its power footprint in Singapore to nearly 3 GW by 2030, representing around one-third of the market share. This expansion includes:
- 600 MW Sakra Cogen Plant expected to be operational by 2026 (77% completed)
- 500 MW in electricity imports
- 100 MW of zero- or low-carbon power
- Potential 600 MW combined-cycle plant slated for 2030
As of 3Q24, 71% of Keppel’s Singapore power generation is contracted, up from 60% at the end of 1H24, ensuring stable recurring income.
Strategic Developments
Asset Monetisation
Keppel has been proactive in asset monetisation, divesting S$733 million worth of assets in 2024, including:
- A 70% stake in Saigon Sports City for S$391 million
- A 16% stake in Saigon Centre Phase 3 for S$62 million
The company is optimistic about further opportunities in China, especially with potential support from stimulus measures which could boost M&A activity.
Bifrost Submarine Cable
The Bifrost cable, a 20,000 km trans-Pacific system connecting Singapore to the US, is expected to be operational in 2025. It provides a strategic advantage by taking a southern route that bypasses Hong Kong and China. Keppel, along with consortium partners Meta, PT Telekom, and Amazon, sees strong demand for fibre pairs, with prices having “more than doubled” since the first sale in 2021.
Key Financial Metrics (2023-2026 Forecast)
- Net Turnover: Steady growth from S$6,966 million (2023) to S$8,194 million (2026)
- EBITDA: Expected to grow from S$1,297 million (2023) to S$1,645 million (2026)
- Net Profit: Adjusted net profit of S$996 million forecast for 2024, rising to S$1,104 million by 2026
- PE Ratio (2024F): 13.1x
- Dividend Yield (2024F): 5.8%
Growth Strategy and Future Outlook
Asset-Light Strategy
Keppel’s asset-light strategy focuses on reducing assets on its balance sheet while boosting its funds under management (FUM). The company’s FUM is projected to grow across various sectors, including data centres, real estate, and infrastructure.
Upcoming Investment Funds
Three major funds are set to close by the end of 2024:
- US$2 billion Data Centre Fund III
- US$1 billion Education Asset Fund II
- US$1 billion Private Credit Fund III
These funds reflect strong investor interest and are expected to drive future growth.
Share Price Catalysts
- Successful divestment of Genting Lane DC and floating data centre assets
- Growth in the Asset Management segment’s AUM
- Further asset monetisation, especially in China
- Positive developments in Bifrost cable operations starting in 2025
Valuation and Recommendation
Keppel is rated as a “BUY” with a target price of S$8.89. The company’s stable earnings stream, supported by a diversified portfolio, asset-light approach, and strategic growth initiatives, make it an attractive investment.
