AT KEPPEL’S annual town hall this year, which included employees from abroad who were tuning in remotely, chief executive officer Loh Chin Hua told some hundreds of his fellow “Keppelites”: “This is only Act One. We have to make sure that Act Two is just as good.”
There was a celebratory feeling in the air during the session.
Speaking to The Business Times in an interview, he said of that meeting: “I was very pleased to report that we had done very well over the past two years. We had executed our transformation and the market had rewarded us. Still, there is a lot that can be done... a lot of headroom for us to grow.”
Loh, who capped his 10th year as Keppel’s head honcho in January, must be feeling on top of the world – much like the feeling one gets when taking in the view of Singapore’s southern waterfront from the full-height glass windows in his office on the 18th floor of Keppel Bay Tower.
In February, the conglomerate-turned-global asset manager and operator, which counts Temasek Holdings as its single largest shareholder, reported profits of S$4.1 billion in FY2023 – up four times from the year before. It was a record in Keppel’s 55-year-long history.
A chunk of that came from divestment gains of Keppel Offshore & Marine (O&M), a wholly owned unit that, during the heyday of the oil boom, was the centrepiece of Keppel’s rise, but became a millstone when the cycle turned, and even more so on the back of the Covid-19 pandemic.
GET BT IN YOUR INBOX DAILY
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
No longer weighed down by the O&M unit and following some tinkering to bring together the group’s disparate parts – from infrastructure and real estate to connectivity and fund management – Keppel unveiled a radical reset almost exactly a year ago to woo back the market.
Under this plan, which formed the next stage of its 10-year road map Vision 2030, Keppel shed its long-held conglomerate status and recast itself as a “differentiated global alternative real asset manager and operator”.
Loh said: “Businesses have been doing this (asset management) for a long time. KKR, Morgan Stanley, Blackstone, BlackRock – they are more financial investors. What we offer is unique... very few have the operating capability that we have.”
He added: “This is where we take advantage of our deep industrial roots to create something unique. We can build stuff; we can operate things... actually create value. Increasingly, that’s what investors are gravitating towards.”
Keppel’s transformation
The pieces of Keppel’s transformation are falling nicely in place. Four years ago, it launched a plan to monetise S$3 billion to S$5 billion in assets by end-2023. Last year, the company upsized the cumulative asset monetisation target to between S$10 billion and S$12 billion by end-2026. It has so far done so to the tune of S$5.5 billion.
More significantly, the texture of its earnings has dramatically changed, from one of lumpy profits to recurring income – the holy grail for businesses.
This has been chiefly led by Keppel’s infrastructure division, which has turned asset-light and switched to steadier trading and fee-based incomes, after a history of lumpy earnings from EPC (engineering, procurement and construction) contracts for O&M jobs.
“If you track back five years, that percentage is now a lot smaller. Today, the quality of our earnings is very, very different,” said Loh.
Last year, recurring income from continuing operations rose 54 per cent to S$773 million, making up 88 per cent of the company’s net profit – up from 60 per cent in FY2022.
This was a while in the making. Loh said that as far back as 2015, when oil prices were slipping as the US cranked up shale oil production, Keppel started to relook its earnings.
“The profits were good, but you want profits that are more highly valued by the market,” he said, referring to the market practice of conducting a sum-of-the-parts valuation for non-recurring profits revenue, as opposed to “applying a multiple, much less a growth multiple”.
To shift towards steady, recurring income, Keppel needed to become “a developer, owner and operator”. The challenge was funding this pivot without straining its balance sheet. The solution: Keppel Capital.
Keppel Capital was launched in 2016 by pooling S$26 billion in assets under management by consolidating infrastructure, real estate, data centres and fund management arm Alpha Investment Partners.
Alpha Investment was founded by Loh when he joined Keppel back in 2002. It is fitting then, that under his stewardship, and after several twists and turns on the transformation journey, Keppel would finally recast itself as a global asset manager and operator.
The 2016 move to consolidate the assets caught analysts’ attention.
“What’s interesting is that before we aggregated the segments, they were kind of disparate... sitting below the verticals – and analysts following us did not really pay attention to them,” said Loh. “So when we put them together, they said: ‘Wow, you have S$26 billion under management.’”
He added, however, that it still took time for the market to recognise the sum-of-the-parts value of Keppel Capital.
Indeed, it is a better investment pitch these days. Keppel’s funds under management (FUM) stood at S$55 billion at the end of 2023, and is set to rise to S$79 billion following the acquisition of Europe’s Aermont Capital, the deal that will bring the company’s FUM closer to its S$100 billion target by 2026.
As Keppel’s FUM expanded, the group’s balance sheet shrank.
“This means we are able to grow our business beyond what our balance sheet would otherwise be able to support. So this recurring nature is quite important,” he added.
The resolve to change
Under Loh’s stewardship, Keppel stepped up the group’s long-term decarbonisation and sustainability solutions. It also set a target to grow its renewable-energy portfolio to 7 gigawatts (GW) by 2030, and announced renewables projects with a total capacity of 4 GW as at end-2023, including projects under development.
Last month, the flagship Keppel Sustainable Urban Renewal Fund achieved its first close, bringing the total FUM in the group’s sustainable urban renewal strategy to over US$1.7 billion.
The firm’s resolve to change, in a landscape that has altered much since the pandemic, stands out among the big conglomerate revamps in Singapore Inc. It seems all that is left is to stick to the game plan.
Loh is determined to ensure this happens. “I’m very fixated, and I don’t make any apologies for the vision, the approach. We know where we want to go, what we want to do, and we know what we need to do. We just need to execute.”
In an interview published in the company’s latest annual report, he said: “Keppel’s multidimensional transformation has seen us turn the company from brown to green, from a balance-sheet player into an asset-light asset manager, and from a conglomerate with vertical silos into a horizontally integrated company with end-to-end value chains.”
None of that happened overnight; in fact, the seeds of change were sown over a decade ago, when he took the helm.
“It took a bit of time. By nature, I’m really an impatient person. But sometimes, you need to take that time to internalise things. The outcome of a more deliberate move has resulted in a better-thought-out strategy. Speed is good, but it can also sometimes – especially when you are making major moves – make you miss out some steps,” he said.
Loh added: “It’s always a team sport. I have a team of colleagues who are good at what they do, and we have an experienced and diverse board. Such interaction, while it might slow things down, is actually very necessary. The final decision was properly discussed in all different permutations.”
Keyword added to your list