Analyzing Keppel Corporation's (SGX: BN4) Half-Year Fiscal 2023 Financial Results

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On Thursday, Singapore-based Keppel Corporation (KPELY) reported a full-year profit that surged more than four times, primarily driven by a significant one-off gain stemming from the divestiture of its offshore and marine (O&M) division.

The company's operating profit for the half-year was S$504 million (-0.42%, YoY), while net profit reached S$440 million (+2.52%, YoY). The operating profit for the full year was S$1,075.91 million, with a net profit of S$4,066.65 million (+338.87%, YoY). The exaggerated annual growth in net profit came from a S$3.3 billion (approximately US$2.46 billion) gain recorded in February 2023 following the sale of its O&M business. This sale, along with strong performance in its infrastructure division, led to a record net profit for the year.

During FY23, the company's net profit from continuing operations climbed to S$996 million, a commendable 19% uptick from FY22's S$839 million. This figure carefully omits contributions from the phased-out O&M sector and the losses tied to the distribution in specie of Keppel REIT units from both years. Each of the company's three pillars – Infrastructure, Real Estate, and Connectivity – experienced profitability, with the Infrastructure division's net profit surging a remarkable 135% yoy to S$699 million, propelled by the robust integrated power business. Despite market challenges in regions like China, the Real Estate division held its ground with a noteworthy contribution of S$426 million to the fiscal year's net profit.

In FY23, Keppel achieved S$283 million in asset management fees, up 6% yoy. Over this period, Keppel’s private funds and listed real estate and business trusts raised about S$2.3 billion in equity, completed S$2.5 billion in acquisitions and divested S$0.5 billion of assets.

1.As at end-December 2023, Keppel’s Funds Under Management (FUM) grew to S$55 billion from S$50 billion a year ago. In November 2023, Keppel announced the proposed strategic acquisition of leading European asset manager, Aermont Capital to accelerate its growth at a global scale. When Phase 1 of the acquisition is completed in 1H24, Keppel’s FUM is expected to grow to about S$79 billion, or close to 80% of the Company’s interim target of S$100 billion by 2026.

Despite the high interest rate environment, Keppel has managed its capital astutely, leading to its interest costs rising at a relatively moderate pace over the past few years. In the three years from end-2020 to end-2023, the Company’s cost of funds increased by a moderate 150 bps, compared to the three-year swap rate, which rose significantly by about 240 bps over the same period. As at end 2023, about 66% of the Company’s borrowings were on fixed rates, with interest cost of 3.75% and weighted tenor of about three years, while Adjusted Net Debt to EBITDA was 4.6x.

On the back of Keppel’s strong performance and reflecting confidence in the Company’s growth trajectory, the Board has proposed a final cash dividend of 19.0 cents per share for FY23. Including the interim dividend of 15.0 cents per share paid to shareholders in August 2023, the total cash dividend for FY23 is 34.0 cents per share, which is higher than the 33.0 cents per share in FY22.