Keppel Corporation Limited’s Latest Earnings: What’s Next After A 38% Decline In Profit?

Keppel Corporation Limited (SGX: BN4) released its 2016 third-quarter earnings yesterday evening.

As a quick background, Keppel Corp is a bona-fide conglomerate with its four business divisions: Offshore & Marine, Property, Infrastructure, and Investments.

With that, let’s have a look at the company’s results to better understand how it had performed

Financial Highlights

  • Revenue for the reporting quarter had decreased by 40% from S$2.44 billion a year ago to S$1.46 billion. The table below shows a breakdown of the revenue contribution from each division. As you can see, the big culprit for the company’s overall revenue decline is the Offshore & Marine division, which saw its top-line fall by a sharp 63% year-on-year.keppel-corp-division-revenue-table-esjay
    Source: Keppel Corp earnings presentation
  • As a result of the lower revenue, Keppel Corp’s net profit attributable to shareholders came in at S$224.5 million, 38.1% lower than a year ago. Earnings per share also fell by 38% from S$0.20 in the third-quarter of 2015 to S$0.124.
  • Keppel Corp showed improvements on the cash flow front. Free cash flow for the reporting quarter came in at S$560 million (operating cash flow of S$635.2 million and capital expenditure of S$75.3 million), compared to a negative S$584.3 milion seen a year ago (operating cash flow of a negative S$466.9 million and capex of S$117.4 million).
  • As of 30 September 2016, Keppel Corp’s net debt stands at S$6.77 billion, up from S$6.03 billion a year ago. This resulted in an increase in the company’s net gearing from 0.52 to 0.57.
  • Keppel Corp ended the reporting quarter with a net asset value (NAV) per share of S$6.13, up 3.7% year-on-year.

Business highlights

The Offshore & Marine division saw its revenue fall because of lower volume of work, deferment of some projects, and the suspension of Sete Brasil-related contracts. For reference, the Brazil-based Sete Brasil is a major customer of Keppel Corp and it filed for bankruptcy protection earlier in the year.

The Infrastructure division also saw lower revenue from its power and gas business due to lower prices and volume.

Real estate was a bright spot for Keppel Corp as revenue there stepped up by 4% as shown earlier. The company’s property business in Singapore had brought in higher revenue, but declines in China had partially offset some of that.

Future prospects

On the future of its Offshore & Marine division, Keppel Corp commented that it “is rightsizing its operations for what is expected to be an extended slowdown, while pursuing opportunities in niche markets and in non-drilling assets. It will be continue to build new capabilities and position itself to seize opportunities for the upturn.”

The Offshore & Marine division ended the reporting quarter with a net order book of S$4.1 billion (excluding Sete Brasil orders) after securing S$0.5 billion of new orders to-date.

On the Property division, here’s what Keppel Corp had to say:

“Sales have improved in China and Singapore. Keppel REIT’s (SGX: K71U) office buildings in Singapore and Australia continue to maintain high occupancy of 99.5% as at end- September 2016. The Division will remain focused on strengthening its presence in its core and growth markets, while seeking opportunities to unlock value and recycle capital.”

Keppel Corp also said that it sold 3,510 homes in the first nine months of 2016, up 12.9% from 3,110 for the same period a year ago.

Keppel Corp’s shares closed last evening at a price of S$5.44 each. This implies a price to book ratio of 0.89 and a trailing price to earnings ratio of 9.2. 

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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 Esjay owns shares in Keppel Corporation.