Keppel Corporation Limited’s Investors Should See These 3 Important Charts

Keppel Corporation Limited (SGX: BN4) has had a rough start to the year.

The property and oil & gas conglomerate saw its revenue and profit plunge by 38% and 41%, respectively, in the first-quarter of 2016. This follows a 22% fall in total revenue in 2015. Investors could probably use some solace at this moment.

A recent investors’ presentation by Keppel Corporation contained some slides that could interest investors. As it is with any investor presentation, management has the chance to put its best foot forward to convince investors on the merits of a company. Here are three key slides which I have picked out.

2016-05-09 Keppel Make Money
Source: Keppel Corporation’s presentation

Keppel Corporation has a number of ways to bring in revenue, according to the slide above.

First, part of Keppel Corporation’s revenue is project-based. Here, the rig-building projects in its offshore and marine segment comes to mind. Second, Keppel Corporation also operates some of its own assets. This could be referring to its stakes in  Keppel DC REIT (SGX: AJBU) and Keppel REIT (SGX: K71U), among others. Keppel DC REIT, for instance, deals with the leasing of data centres. Third, Keppel Corporation also lists revaluations and divestments as part of its value creation process. There’d be more on this shortly.

Let’s look at how the conglomerate’s net profit breaks down:

2016-05-08 Recurring Income
Source: Keppel Corporation’s presentation

The slide above frames Keppel Corporation’s net profit in a new light. It divides the conglomerate’s net profit into three major buckets, namely, project-based, recurring, and RID (revaluations, major impairments and divestments).

Keppel Corporation could be making three arguments here.

One, the majority of the fall in net profit from 2014 to 2015 has been from its project-based revenue. This should not be a surprise, given the overall weakness in the oil and gas sector.

Two, Keppel Corporation marks out part of its revenue as recurring. Notably, the company’s recurring net profit has remained a steady contributor from 2014 to 2015. Keppel Corporation recorded $407 million in recurring revenue in 2015, slightly lower than the $417 million recorded in 2014. Loh Chin Hua, Keppel Corporation’s chief executive, expressed the importance of this segment in a recent address:

“Creating high quality assets and then stabilising and monetising them to generate strong cash flow and recurring income are integral to Keppel’s multi-business model. In particular, we want to work the assets in our asset-heavy businesses much harder, and recycle them at the right time to earn the best risk-adjusted returns.”

Loh refers to asset recycling in his statement above, which bring us to the final point. RIDs have contributed an average of 23% of Keppel Corporation’s annual net profit over the past six years. This is shown in the chart below:

2016-05-09 RID Keppel
Source: Keppel Corporation’s presentation

In the RID area, Keppel Corporation will be looking to unlock value from its existing asset base and reinvest the proceeds into assets with higher returns. The nature of this activity makes the year-to-year RID net profit volatile, as shown in the graph above.

All told, the three slides above tell us a little bit about how Keppel Corporation thinks about its business, and its plans to create value over time.

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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.