How Is Keppel Corporation Limited Turning Itself Around?

The fortunes of oil & gas and property development conglomerate Keppel Corporation Limited (SGX: BN4) have turned south drastically over the past few years.

It was only a few years ago that the company was an anchor constituent of Singapore’s market benchmark, the Straits Times Index (SGX: ^STI). Today, the company’s still a constituent of the index, but it has turned into an unloved stock.

Over the past two years, Keppel Corp has seen its share price fall by 45%. Many market commentators – and even the company itself – are expecting a prolonged slump in the oil and gas sector. So, the company’s future does not appear that bright.

But, Keppel Corp is not sitting still. The company recently gave investors a sense of what its future might look at.

In an October presentation to the Templeton Emerging Markets Group, the company acknowledged the difficult environment its Offshore & Marine business division is in as a result of the drastic decline in oil prices seen since 2014. To deal with lower demand in the Offshore & Marine business division, Keppel Corp has

  • Reduced the division’s overheads by 20% year–on-year.
  • Cut the division’s direct workforce and subcontract headcount by 30% and 40%, respectively, since the start of 2015.
  • Been reviewing how it can streamline its operations.
  • Been investing in research and new technologies and pushing forward with new designs for non-oil-and-gas-related projects.

In its Property division, Keppel Corp is seeing good demand. The company continues to view Singapore and China as its core markets but has since entered other growth markets such as Vietnam and Indonesia.

One major project that is on-going for the Property division is Sino-Singapore Tianjin Eco-City. Keppel Corp sees the project as a “model for sustainable urbanisation in China.” It aims to transform 30 square kilometers of non-arable water-scarce land into an area that can house 350,000 residents. Right now, the Eco-City is home to “60,000 residents and 4,000 registered companies.”

With projects such as Sino-Singapore Tianjin Eco-City, Keppel Corp’s real estate arm, Keppel Land, is looking to maintain high returns on equity going forward. In fact, Keppel Land “aims to be [the] developer with [the] highest return in Asia.” Other possible areas of growth for Keppel Corp include the Property division’s fund management business and the Infrastructure division.

Foolish Summary

Keppel Corp is currently trading at 9.3 times trailing earnings and offers a dividend yield of 5.6%. Those are valuations that are better than the market average. But, can Keppel Corp turnaround its business in the future? There are certainly some bright spots, although we would still need to see if growth from the promising areas would be sufficient to offset the weakness seen in the oil and gas sector.

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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 writer Stanley Lim doesn’t own shares in any companies mentioned.