Keppel Corporation Limited (Keppel) reported a net profit of over S$3.6 billion for the half year ended 30 June 2023, the highest profit on record in the Company’s 55-year history. 1H23’s net profit was significantly higher than the S$498 million reported in 1H22, underpinned by a S$3.3 billion disposal gain from the divestment of the offshore and marine (O&M) business. Annualised Return on Equity (ROE) was 36.8% in 1H23, compared to 8.4% in 1H22.
Excluding the discontinued O&M operations in both periods, Keppel delivered a robust net profit of S$445 million in 1H23, which was about 3% higher year on year (yoy), bolstered by stronger performance by the Infrastructure and Connectivity segments. About 76% of 1H23’s net profit from continuing operations comprised recurring income, which surged 62% yoy to S$340 million from S$210 million in 1H22.
The Company’s revenue from continuing operations in 1H23 grew 11% to S$3,716 million from S$3,356 million in 1H22, underpinned by higher contributions from the Infrastructure and Connectivity segments.
Amid inflation and a high interest rate environment, Keppel continued to strengthen its business resilience. As at end-June 2023, about 65% of Keppel’s borrowings were on fixed rates, with an average interest cost of 3.53% and weighted tenor of about three years, while the Company’s Adjusted Net Debt to EBITDA[3] was 4.7x.
Mr Loh Chin Hua, CEO of Keppel Corporation, said, “The first six months of 2023 were transformational and productive for Keppel. Following the successful divestment of the O&M business, we embarked on a monumental shift to remove our conglomerate structure and become a global alternative real asset manager, with deep operating capabilities in Infrastructure, Real Estate and Connectivity. The strong execution of our transformation plans has allowed us to create superior, tangible value for shareholders. Over the 18-month period from 1 January 2022 to 30 June 2023, Keppel’s total shareholder return reached 118.0%, outperforming STI’s 9.62% by more than 12 times.”
In 1H23, Keppel achieved asset management fees of S$116 million[4], translating into an annualised Fee-to-FUM ratio of 50 basis points[5]. Over this period, the Company raised about S$1.0 billion in equity, completed S$1.1 billion in acquisitions and divested S$0.5 billion of assets. As at end-June 2023, Keppel’s Assets Under Management[6] (AUM) was S$65.6 billion, which included about S$12.4 billion of real assets on Keppel’s balance sheet that can be potentially converted into fee-bearing Funds Under Management (FUM) over time. FUM as at the end of June 2023, was about S$53.2 billion, which Keppel aims to grow to S$100 billion by 2026, and S$200 billion by 2030.
Mr Loh, said, “Looking ahead, we believe that 2H23 will present more interesting investment opportunities as the market adjusts to the new pricing paradigm, which better reflects the tighter credit markets, higher interest rates and more subdued economic growth outlook. Amidst the volatile environment, we will continue working with our limited partners to provide differentiated products that capitalise on Keppel’s strong operating capabilities, including our proprietary assets, which can produce strong inflation-protected cash flows.”
Notwithstanding more cautious investor sentiments, Keppel announced the monetisation of about S$420 million of assets in the year to date, raising its cumulative total to over S$4.8 billion, and releasing S$3.8 billion[7] in cash, since the asset monetisation programme began in October 2020. Proceeds from asset monetisation are being invested in new growth engines, leveraging Keppel’s asset-light model, and also used to reward shareholders.
As an appreciation of the support and confidence of Keppel shareholders, the Board of Keppel Corporation has approved an interim cash dividend of 15.0 cents per share for 1H23. This interim dividend, which will be paid to shareholders on 18 August 2023, is comparable to last year’s interim dividend of 15.0 cents.
With the latest interim cash dividend of 15.0 cents for 1H23, coupled with the FY22 final cash dividend of 18.0 cents per share paid in May 2023, shareholders will be receiving a total cash dividend of 33.0 cents in 2023 for every Keppel share held. This translates into a cash dividend yield of 4.7% based on Keppel’s closing share price of S$6.99 on 26 July 2023.
In addition to the interim cash dividend, the Board of Keppel Corporation has also proposed the distribution of a special dividend in-specie of Keppel REIT (KREIT) units to commemorate Keppel’s 55th anniversary. For every five Keppel Corporation shares held, Keppel’s shareholders will receive one KREIT unit[8]. Keppel REIT traded at S$0.915 per unit on its closing on 26 July 2023.
The proposed dividend in-specie is a part of Keppel’s capital management initiatives, and will further allow shareholders to own a stable investment with steady yield. The proposed dividend in-specie will be subject to Keppel shareholders’ approval at an Extraordinary General Meeting (EGM) to be held later this year. Further details on the EGM will be announced in due course.
Post distribution, Keppel will remain the largest unitholder of KREIT with an interest of about 37.1%, and remains committed to drive KREIT’s growth in alignment with the interests of unitholders. Keppel’s proposed distribution will further increase KREIT’s public float, allowing it to widen its investor base and enjoy higher liquidity which are beneficial to KREIT unitholders in the longer run.