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Keppel Corporation Limited’s Investors Should See These 3 Slides from Management

Keppel Corporation Limited (SGX: BN4) had a mixed start to 2017.

Although the marine engineering and property development conglomerate saw its 2017 first quarter revenue fall 28% year-on-year, its profit actually rose 23%. The mixed numbers may leave investors wondering what to make of Keppel Corporation’s latest quarterly results. The company’s earnings presentation for the quarter can help shed some light.


Source: Keppel Corporation’s earnings presentation

Keppel Corporation has four major business divisions: Offshore and Marine (O&M), Infrastructure, Property, and Investments. With reference to the slide above, the company’s chief executive, Loh Chin Hua, said:

“For the first quarter of 2017, we achieved a net profit of S$260 million, an increase of 23% over the same period in 2016. The drop in profit in the O&M Division was offset by improved earnings from the Infrastructure and Investments divisions, while the Property Division continued to contribute steadily to the Group.”

Keppel Corporation’s O&M division recorded $95 million in net profit in the first quarter of 2016, but had no profit in the first quarter of 2017. It was left to the Investment division to prop up Keppel Corporation’s overall bottom-line.

But, investors should recognise that investment gains are expected to be lumpy from quarter to quarter.


Source: Keppel Corporation’s earnings presentation

There are parts of Keppel Corporation’s business which deliver less lumpy profits.

The slide just above divides Keppel Corporation’s net profit into three major buckets, namely, project-based, recurring, and RID (revaluations, major impairments and divestments). Loh said:

“Recurring income contributed S$78 million or 30% of the Group’s net profit for 1Q 2017, underpinned by stable and fairly predictable income from our REITs & business trust, asset management, infrastructure services and operations & maintenance, and rental & charter activities.

We are focused on improving the overall quality of our earnings and the Group’s recurring income, which will better fund our capital spending as well as dividends.”

Given the cyclical nature of Keppel Corporation’s businesses, having recurring income can be a good thing.


Source: Keppel Corporation’s earnings presentation

It is always useful to keep the long-term view mind. For Keppel Corporation, that would be rising urbanisation in Asia. Loh said:

“Rapid urbanisation, especially in Asia, is creating strong demand for energy, infrastructure, clean environment, high quality homes, offices and retail developments, as well as connectivity – needs for which the Keppel Group has been providing a range of solutions.”

Loh acknowledges that individual businesses within Keppel Corporation will undergo downturns, but he remains positive on the secular growth of the firm:

“While some of the industries that our businesses operate in may have their own cycles, sustainable urbanisation will provide the Keppel Group with many years of secular growth.”

As it is with any presentation from a company, management will be attempting to highlight the best aspects of the company. The three slides above tell you a little bit about how Keppel Corporation’s management thinks about the company’s business and how they plan 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.