CGS International

April 24, 2025

Keppel Ltd: Asset Monetization Gathering Pace, Poised to Exceed S\$1 Billion in 2025

Executive Summary: Keppel’s Monetization Momentum

• Keppel Ltd (KEP) is demonstrating strong asset monetization progress, with an estimated S\$245 million in gains expected in 1H25F from S\$347 million in divestments YTD [[1]].
• Analysts believe there is potential earnings upside to the FY25F group net profit forecast of S\$864 million [[1]].
• KEP could potentially achieve approximately S\$1 billion in asset monetization by 1H25F, driven by possible divestment of around S\$550 million in real estate assets across Singapore and India [[1]].
• First quarter 2025 profit trends are positive, showing a 25% year-over-year increase, and more than doubling when legacy assets are included. This compares favorably to 1H24 net profit of S\$304 million [[1]].
• Despite lower oil prices affecting offshore market sentiment, KEP is receiving charter contract inquiries [[1]].
• The firm maintains an “Add” rating with a target price of S\$9.28 [[1]].

Asset Monetization: Exceeding Expectations

• KEP has already monetized S\$347 million in assets YTD, primarily in real estate, showing substantial progress compared to S\$108 million in 1Q25 (excluding Wuxi projects) [[1]].
• An estimated S\$245 million in gains is expected to be recognized from these monetizations, providing an earnings boost to the forecast, which previously penciled in S\$210 million in divestment gains for FY25F [[1]].
• KEP is in advanced negotiations to monetize approximately S\$550 million of real estate assets in Singapore and India within the coming months. Potential projects for sale include I12 Katong (19.7sm NLA) and Mumbai Urbania Township [[1]].
• By the end of 2025, KEP is likely to surpass S\$1 billion in asset monetization, including partial sales of M1 and rigco [[1]].
• Despite the impact of lower oil prices on the offshore and marine market, KEP continues to market uncontracted rigs and has received charter inquiries for operations in Brazil, the North Sea, the Gulf of Mexico, and Southeast Asia [[1]].

Profitability: Strong Year-over-Year Growth

• Including legacy assets, 1Q25 net profit doubled year-over-year. Excluding legacy O&M assets, net profit rose 25% year-over-year in 1Q25 [[2]].
• This growth is attributed to lower mark-to-market (MTM) losses from KEP’s stake in STM (1Q24: -c.S\$50m, 1Q25: +S\$3m), a stronger real estate segment, higher asset management fees, and a full-quarter contribution from Aermont [[2]].
• Asset management fees increased by 9% year-over-year to S\$96 million. M&A activities were 2.5 times higher year-over-year at S\$2.7 billion (compared to S\$1.1 billion in 1Q24 and S\$6.2 billion in FY24) [[2]].
• Assets Under Management (FUM) are on track to hit the S\$100 billion target by the end of 2025, up from S\$88 billion at the end of 2024 [[2]].

Dividend Sustainability and Recurring Income

• KEP reports limited direct impact from US tariffs, with over 80% of its net profit (excluding legacy O&M assets) derived from recurring income [[2]].
• KEP and STM have agreed to terminate the segregated account arrangement, releasing S\$291 million in cash for KEP [[2]].
• As of April 17, 2025, KEP holds a 1.87% stake in STM, equivalent to approximately 63.4 million shares or S\$120 million (based on S\$1.90/share) [[2]].
• Monetization progress supports the FY25F dividend per share (DPS) forecast of S\$0.35 (5.2%) [[2]].
• Key re-rating catalysts include special dividends and significant divestments such as the M1 consumer business and partial rigco sale [[2]].
• Downside risks include a global recession and slower asset monetization [[2]].
• The firm retains an “Add” rating with a sum-of-the-parts (SOP)-based target price of S\$9.28, citing KEP’s recurring income business streams and transformation into a global asset manager [[2]].

Investment Highlights and Recommendations

• Recommendation: Add (no change) [[2]].
• Current Price: S\$6.40 [[2]].
• Target Price: S\$9.28 [[2]].
• Previous Target: S\$9.28 [[2]].
• Up/downside: 45.0% [[2]].
• Key Strengths: Recurring income business, transformation path into global asset manager [[2]].
• Key Risks: Global recession, slower asset monetization [[2]].

Financial Performance and Key Metrics

Financial Summary

• Revenue: Projected to grow steadily from S\$6.89 billion in Dec-25F to S\$7.38 billion in Dec-27F [[3], [6]].
• Operating EBITDA: Expected to increase from S\$1.51 billion in Dec-25F to S\$1.70 billion in Dec-27F [[3], [6]].
• Net Profit: Forecasted to rise from S\$864 million in Dec-25F to S\$1.02 billion in Dec-27F [[3], [6]].
• DPS: Dividend per share is anticipated to increase from S\$0.35 in Dec-25F to S\$0.38 in Dec-27F [[3], [6]].

Shareholder Information and Price Performance

• Major Shareholders: Temasek Holdings (20.6%), BlackRock (5.2%), Vanguard Group (3.0%) [[2]].
• Price Performance:
  • 1 Month: -6.7% absolute, -3.4% relative [[2]].
  • 3 Months: -4.5% absolute, -4.9% relative [[2]].
  • 12 Months: -9.0% absolute, -35.9% relative [[2]].

M1 Divestment Scenario Analysis

The report includes a scenario analysis for the potential divestment of M1, considering both complete divestment and divestment of the consumer business only, under different EV/EBITDA valuation multiples [[2]].

Asset Monetization Trend

Contracted Capacity and Long-Term Contracts

• As of March 2025, 66% of capacity is contracted for three years or more [[3]].
• Long-term contracts amount to S\$6.3 billion [[3]].

Sum-of-the-Parts (SOP) Valuation

The report provides a detailed SOP valuation, breaking down the value per share for various segments:

• Infrastructure: S\$3.66 per share [[3]].
• Real Estate: S\$2.91 per share [[3]].
• Listed REITs and Trusts: S\$1.55 per share [[3]].
• Connectivity: S\$1.28 per share [[3]].
• Fund Management and Others: S\$4.85 per share [[3]].
• Net Debt: (S\$5.21) per share [[3]].
• Total: S\$9.28 per share [[3]].

Peer Comparison

The report compares Keppel Ltd with its peers across various metrics:

• Integrated Global Asset Management: Capitaland Investment [[4]].
• Singapore Shipbuilder: Seatrium Ltd [[4]].
• Chinese Shipbuilders: COSCO SHIPPING International S, China CSSC Holdings Ltd, China Shipbuilding Industry Co, CSSC Offshore and Marine Engin, Yangzijiang Shipbuilding [[4]].
• Korea Shipbuilding & Offshore: HD Hyundai Mipo, Samsung Heavy Industries, Hanwha Ocean, Sejin Heavy Industries Co Ltd [[4]].
• Japan Shipbuilder: Mitsui E&S Co Ltd [[4]].
• US Shipbuilder: Brookfield Corp [[4]].
• Industrial/conglomerate / airport services: CSE Global, SATS Ltd, Sembcorp Industries, ST Engineering, SIA Engineering [[4]].

ESG Analysis

• Keppel Corporation has maintained an AAA MSCI ESG rating since 2020 and is among the top 8% of global industrial conglomerates in the MSCI All Country World Index [[5]].
• The company scored B for its LSEG ESG score in 2023 and ranked 8 among the 95 corporates covered by LSEG in Singapore [[5]].
• Sustainability is a core strategy, focusing on Energy & Environment, Urban Development, Connectivity, and Asset Management [[5]].
• KEP was awarded the Winner of the Singapore Corporate Governance Award 2022 (Big Cap) at the Securities Investors Association (Singapore) (SIAS) Investors’ Choice Awards [[5]].

ESG Controversies and Implications

• KEP’s ESG Controversies score has improved from D+ in 2016 to C+ in 2023, following the settlement of fines with crime prevention authorities in the US, Brazil, and Singapore at end-2017 [[5]].
• KEP O&M became one of the first companies in Singapore to achieve global certification for the ISO 37001 Anti-Bribery Management System in 2019 [[5]].

ESG Highlights and Trends

• KEP aims to halve its Scope 1 & 2 emissions and has announced renewable projects with a total capacity of 1.1GW since 2020 [[5]].
• The company is developing a 500MW greenfield solar farm in Australia [[5]].
• Internal targets include a 10% reduction in waste intensity and a 20% reduction in water consumption intensity by 2030F from 2019 levels [[5]].
• KEP’s asset-light strategy has reduced its carbon footprint via divestment of non-core businesses [[5]].

Key Ratios and Financial Health

• Revenue Growth: Projected to grow steadily from 4.31% in Dec-25F to 3.96% in Dec-27F [[7]].
• Operating EBITDA Margin: Expected to increase from 21.9% in Dec-25F to 23.0% in Dec-27F [[7]].
• Net Cash Per Share: Expected to improve from -S\$5.27 in Dec-24A to -S\$4.71 in Dec-27F [[7]].
• BVPS: Book Value Per Share is anticipated to increase from S\$6.25 in Dec-25F to S\$6.59 in Dec-27F [[7]].

Disclaimer

This report is for informational purposes only and does not constitute investment advice. The information contained herein is based on sources believed to be reliable, but no guarantee is made as to its accuracy or completeness. CGS International and its affiliates may have positions in the securities mentioned in this report and may perform services for the covered companies.