Keppel Corporation Limited’s (SGX: BN4) business is mired in problems. For the first nine months of this year, the company reported a 38% year-on-year decline in revenue and a 42% fall in net profit. During Keppel Corporation’s 2016 third quarter earnings presentation, management shared a number of insights on the state of the company’s business. For management’s quotes on Keppel Corporation’s Offshore and Marine business, you can head here. Meanwhile, there are another six quotes that investors might not want to miss. Let’s get going. The alleged bribery scandal Keppel Corporation has been drawn into a bribery scandal…
Keppel Corporation Limited ’s (SGX: BN4) business is mired in problems.
For the first nine months of this year, the company reported a 38% year-on-year decline in revenue and a 42% fall in net profit. During Keppel Corporation’s 2016 third quarter earnings presentation, management shared a number of insights on the state of the company’s business.
For management’s quotes on Keppel Corporation’s Offshore and Marine business, you can head here. Meanwhile, there are another six quotes that investors might not want to miss. Let’s get going.
The alleged bribery scandal
Keppel Corporation has been drawn into a bribery scandal in Brazil and the company initially denied that it had any involvement. But after some time, Keppel Corporation reported that some transactions were deemed to be suspicious.
Loh Chin Hua, Keppel Corporation’s chief executive, sought to reassure the company’s stakeholders with this message:
“I want to reassure all our stakeholders of Keppel’s zero-tolerance stance against any form of illegal activity, including bribery and corruption, involving its employees or associates. The matter is closely under review and we will make further announcements as appropriate.”
Moving on, Loh talked about Keppel Corporation’s Property business segment. He opened with this statement:
“Keppel Land has been actively implementing our strategy to recycle assets and focus on seeking higher returns. We have achieved divestment proceeds totalling about S$530 million year-to-date.”
On the residential side, Keppel Land sold 3,510 homes with the bulk of the homes being sold in China. The total sales value amounted to $1.6 billion for the first nine months of the year.
Loh added that the segment’s residential pipeline is strong:
“In our residential portfolio, we have a 70,000-strong pipeline and over 16,000 launch-ready homes from now till end 2018. We aim to increase the inventory turn and launch more homes for sale, especially in those markets with favourable conditions.
With a land-bank comprising more than 10 times the number of homes sold on average each year, we are not under pressure to accumulate land and will only do so if we can get an adequate risk-adjusted return.”
There was a common theme in Loh’s opening speech during the 2016 third quarter earnings presentation. And that was how the different parts of Keppel Corporation is supporting each other. For instance, Loh said:
“The REITs [real estate investment trust] and Trust under Keppel Capital also form part of a critical ecosystem for capital recycling.
It is a symbiotic relationship that we share with unitholders. As a strong and responsible sponsor, we have aligned our interests squarely with investors by co-investing significantly in the REITs and Trust that we manage.
Keppel also provides a steady flow of pipeline assets for growth, and has strong operating capabilities in driving value from the assets that we manage.”
Recurring streams of income
As mentioned earlier, Keppel Land had recycled assets to seek higher returns. Loh terms these efforts under “revaluations, impairments and divestments” (RID). He expects this income bucket to contribute meaningfully in the future:
“We will continue to work our assets hard, and then recycle them at the right time, to earn the best risk-adjusted returns.
Gains from revaluations, impairments and divestments contributed S$91 million or 14% of our earnings in the first nine months of 2016. These sources of income are an integral part of our business model and we expect them to contribute regularly and meaningfully to our bottom line.”
Furthermore, Loh also pointed out that 37% of the group’s net profit in the first nine months of the year can be deemed as recurring in nature:
“For the first nine months of 2016, recurring income contributed S$237 million or 37% of the Group’s total net profit. We are determined to improve the quality of our earnings by growing stable streams of recurring income for the long term.”
Going through Keppel Corporation’s earnings presentation gives investors deeper insight on management’s actions and thinking. With that, investors may have a better understanding on the inner workings of the conglomerate.
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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.