Property will still be key to Keppel's growth next year

By EdgeProp Singapore / The Edge Singapore | November 29, 2017 11:58 AM SGT
SINGAPORE (Nov 29): OCBC expects Property to remain Keppel Corp’s dominant contributor to earnings as the group remains focused on strengthening its presence in its core and growth markets, while seeking opportunities to unlock value and recycle capital.
For instance, Tianjin Eco-City project is bearing fruit, with average selling prices of Eco-City residential land having increased significantly since 2016.
In a Wednesday report, analyst Low Pei Han says 2017 was the year Keppel demonstrated the benefits of its multi-business strategy. Despite the downturn in the oil and gas sector, the group delivered an 11.2% y-o-y rise in PATMI to $712.5 million in 9M17.
Offshore & Marine broke even for most of the year, while Property was the top contributor to the group’s earnings at 56% for 9M17.
This was followed by Investments at 30%, and Infrastructure at 14%. On a book value basis, O&M accounted for 17% of net asset value, Property at 63%, Infrastructure at 12% and Investments at 8%.
For the O&M segment, the focus next year will be on the flow of new orders. Having secured more than $1 billion of new orders so far this year, we are expecting new orders of about $1.5 billion next year, mostly for non-drilling work.
“The division is actively capturing opportunities in production assets, specialised vessels and the growing gas market and exploring ways to repurpose its technology in the offshore industry for other uses,” says Low.
In the Investments division, Keppel Capital is expected to grow and allow Keppel to more effectively recycle capital and expand its capital base with co-investments, giving room for growth without putting a strain on the group’s balance sheet.
Meanwhile, Keppel is also establishing a new business unit, Keppel Urban Solutions, which aims to be an end-to-end integrated master developer of smart, sustainable precincts in Asia-Pacific so as to capitalise on the mega trends of rapid urbanisation and the increasing global focus on sustainability.
“We tweak our estimates and our fair value rises slightly from $8.31 to $8.41. Maintain buy,” says Low.
Shares in Keppel are trading 2 cents higher at $7.76 or 16.5 times FY18 earnings.