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Where is Keppel Corporation Limited Headed to Next? – Part I

Shares of Keppel Corporation Limited  (SGX: BN4) has outperformed over the last five plus years.  From 1 Jan 2009 to its closing price on 1 December 2014, the total returns (including reinvested dividends and rights issues) for the company was about 200%. During the same timeframe, the company distributed over $2.65 per share in dividends. By comparison, the capital gains of the SPDR STI ETF (SGX: ES3) was 77.6% for the same duration. The SPDR STI ETF is a proxy for the Straits Times Index (SGX: ^STI).

While the shares of Keppel Corp has been sailing along, as Foolish investors, we can still look behind the curtains to understand its prospects for the future.

A closer look

The business of Keppel Corp can be organised into four different business units – Offshore and Marine, Infrastructure, Property, and Investments.

For the Offshore and Marine business unit, it is the global leader in rig design and building, as well as specialised shipbuilding.

Keppel Corp also has interests in utility power plants, waste management, logistics, and data centers housed under its Infrastructure business unit. The Infrastructure business unit is also where its subsidiaries, Keppel Telecom. & Transport. Ltd. (SGX: K11), and Keppel Infrastructure Trust (SGX: LH4U) reside.

Keppel Corp’s Property arm consists of its 54.6% stake in Keppel Land Ltd (SGX: K17). Keppel Land is one of the largest listed property companies in Singapore by total assets, and also happens to be the sponsor to Keppel REIT (SGX: K71U).

Lastly, Keppel Corp’s Investment segment is home to its investments in companies such as investment firm K1 Ventures (SGX: K01), telecommunications outfit M1 Ltd (SGX: B2F), and oil and gas explorer KrisEnergy Holdings Ltd (SGX: SK3). You can read more about Keppel Corp over here.

Keppel - 1

Source: Company Earnings Report

In Keppel Corp’s last five financial years (the financial year lines up with the calendar year), revenue has basically flat-lined. The sales composition has changed during that timeframe, though.

Revenue for the Offshore and Marine business has experienced feast and famine over the preceding years, ending up lower by about 14% in 2013 compared to 2009. However, revenue for the Infrastructure business has been particularly strong, growing by an annual compounded rate of 7.3% over that five year block. The Property arm of Keppel Corp ended 2013 with sales 17% higher than five years before.

For 2013, Offshore and Marine made up 58% of Keppel Corp’s overall sales, while the Infrastructure and Property business units took up 28% and 14% of sales respectively. We can look at the geographical spread next to get more clues.

Keppel - 2

Source: Company Earnings Presentation; Annual Report

From a geographical point of view, it becomes clear than Keppel Corp is very much a Singapore-based business. In 2013, a whopping 75% of its revenue came from Singapore. Singapore is also the main contributor to sales growth between 2009 and 2013. Contributions from the other ASEAN countries and Americas have been rather lackluster in comparison, falling more than 20% in total over those five years.

Foolish summary

Moving forward, Keppel T&T is looking to spin off its data centres into Keppel DC REIT. The resolution for the spin off was passed during an Extraordinary Meeting on 25 November 2014. Meanwhile, Keppel Infrastructure Trust is looking to merge with CitySpring Infrastructure Trust (SGX: A7RU), and acquire a 51% interest in Keppel Merlimau Cogen, a gas-fired power plant currently housed under Keppel Corp’s Infrastructure business unit. Keppel Corp is expected to have 22.9% ownership of the new combined entity of CitySpring and Keppel Infrastructure Trust.

On the Offshore and Marine side, Keppel Corp reported a net orderbook of $12.7 billion stretching into 2019 as of the end of the third quarter of 2014.

The exercise above is to look at the sales of Keppel Corp alone. So far, there is nothing much which informs the individual investor on why shares of the conglomerate has performed the way it did since January 2009. It is also pretty difficult to forecast the sales for the next few years due to the many moving parts within the company. As a next step, we should observe if the top-line growth trickles down to the bottom-line. But, that’s for the next article.

As of its closing price on 1 December 2014 at $8.56, Keppel Corp traded at a trailing price/earnings ratio of about 8.4, and has a trailing twelve months dividend yield of around 4.9%.

Read the second part of the article covering Keppel Corp here.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.