It?s no secret that Keppel Corporation Limited (SGX: BN4) has felt the brunt of prolonged low oil prices.
But, the pain in the company?s Offshore and Marine business division is partially soothed by a better performance at its other key subsidiary, the real estate outfit Keppel Land. The graph below shows the different fortunes of the two divisions.
Source: Keppel Corporation?s earnings presentation
As we can observe from the bar chart above, the Offshore and Marine division?s profit was crushed in 2016, declining from $482 million in 2015 to merely $29 million. A big part…
It’s no secret that Keppel Corporation Limited (SGX: BN4) has felt the brunt of prolonged low oil prices.
But, the pain in the company’s Offshore and Marine business division is partially soothed by a better performance at its other key subsidiary, the real estate outfit Keppel Land. The graph below shows the different fortunes of the two divisions.
Source: Keppel Corporation’s earnings presentation
As we can observe from the bar chart above, the Offshore and Marine division’s profit was crushed in 2016, declining from $482 million in 2015 to merely $29 million. A big part of the decline was due to an impairment of $336 million that Keppel Corporation took.
In contrast, the Property division- which houses Keppel Land’s operations – held up better. Net profit for the division was $620 million in 2016, down slightly from 2015’s $661 million. For 2016, Keppel Land accounted for close to 80% of Keppel Corporation’s total profit.
Keppel Corporation’s 2016 fourth quarter earnings briefing revealed deeper insights on the performance of the Property division.
Ang Wee Gee, Keppel Land’s chief executive officer, highlighted its key markets:
“As you know, our key markets are China, Singapore, Vietnam and Indonesia.
In China, the government has introduced cooling measures but we see the market as being fairly healthy this year. Economic growth may not be as high as in the past, but it is still very respectable. Our projects are still selling well, so we think that the market will remain healthy this year.
Vietnam is a bright spot amongst the counties that we are focusing on. In the last one or two years, we have seen the market come up very strongly. We are very fortunate to have been in Vietnam for many years.
Our team there has built a strong reputation and brand name as well as good connections and relationships, which we are capitalising on. On top of that, we have built up a large land bank in Vietnam.”
Keppel Corporation’s chief executive officer, Loh Chin Hua, said that the company was fortunate to have expanded out of the Singapore market over the past 20 years. He feels that Keppel Corporation is well-established in China and Vietnam.
Harvesting a bounty
Loh added another thought:
“We are fortunate because this land was built up over the last period of time and we have a very strong team on the ground. We have planted the seeds, so now is the time to do some harvesting.
That is one of the key strengths of the multi-business model that Keppel runs. We always have opportunities in various parts of our business to contribute the profit for the group.”
As we have seen, Keppel Land has propped up Keppel Corporation’s net profit for 2016 as the Offshore and Marine division wallowed in the oil & gas industry’s downturn.
A long runway
There could be more growth on the cards for Keppel Land. Loh took time to point out the group’s landbank pipeline:
“I just want to remind all of us here that we have about 66,000 units in the landbank pipeline for Keppel Land.
Based on the sales last year, that is equivalent to about 10 years of supply. Keppel Land is in a very enviable position where we can buy land, and we have bought land in 2016, but we are not forced to buy land. If we find pieces of land that are attractively priced, we will do so. But we do not have to buy land unless it is attractive.”
Historically, the Property division has had its cyclical highs and lows. Investors may want to look at how Keppel Corporation benefits from its various divisions over a longer period of 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 writer Chin Hui Leong doesn't own shares in any company mentioned.