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Keppel Corporation Starts The Year With Lower Earnings

Keppel Corporation (SGX: BN4), one of the largest conglomerates in Singapore, announced its first quarter earnings yesterday.

Most of its subsidiaries and associates have been busy submitting their own report cards over the past few days as well. Keppel REIT (SGX: K71U) and K-Green Trust (SGX: LH4U) continues to produce good growth. Meanwhile, Keppel Telecommunications & Transportation (SGX: K11) and M1 Ltd (SGX: B2F) both recorded mild growth in their earnings. Unfortunately, Keppel Land (SGX: K17) – one of the mainstays in Keppel Corp’s property business –  had reported a 9.2% decrease in its first quarter earnings, mainly due to non-recurring gains recorded last year that were absent this time around.

Operating result

Coming back to Keppel Corp, for the three months ended 31 March 2014, the company was able to grow its revenue to S$3.0 billion, some 8.6% higher than the first quarter of 2013. However, due to a much higher increase in operating expenses, the company’s quarterly operating profit was only able to grow by 4.6% year-on-year to S$415 million. Together with a 32% decrease in profits to S$65.9 million from its associates, Keppel Corporation had ended the first quarter of 2014 with a 5.1% year-on-year dip in profits to S$338.7 million.

Keppel Corp actually has three main-lines of business – Offshore & Marine, Infrastructure, and Property – and here’s how they performed. Starting with the Offshore & Marine division, it actually recorded a 12% increase in pre-tax profits to S$304 million. Its Infrastructure segment, on the other other hand, continues to be pressured, with pre-tax profits falling by 31% to S$46 million. Meanwhile, Keppel Corp’s Property arm had relatively stable pre-tax profits as it dropped by merely 2% to S$131 million. The Offshore & Marine division continued to be the main operating business for Keppel Corp as it contributed 68% of the company’s net profits during the quarter. In comparison, the Infrastructure and Property segment had accounted for only 9% and 18%, respectively, of Keppel Corp’s overall quarterly net profit.

The firm is still very positive on the Offshore & Marine business as its net order book continued to grow and now stands at S$14.4 billion as of the end of the quarter (up from S$13.1 billion a year ago). The Infrastructure business, on the other hand, will focus on cost management for its on-going projects while increasing its investment into Keppel T&T’s logistic and data center businesses. Keppel Corporation is aware that the property markets might need some time to recover and thus have tried to place more emphasis on its fund management side of things in order to create a more sustainable revenue stream.

Foolish Summary

Although most of its businesses – other than the Offshore & Marine division – have not been performing up to par, it still seems early to write off the ability of Keppel Corp’s management in turning this massive corporation around.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.