Keppel Corporation Limited’s Latest Earnings Briefing: On Dividend and Debt

Keppel Corporation Limited ’s (SGX: BN4) dividends per share have fallen in the last two years.  

In 2014, the conglomerate paid out 48 cents per share. However, dividends fell to 34 cents per share the following year. It got worst in 2016, where Keppel Corporation further reduced dividends to 20 cents per share. This trend brings us to 2017, where the interim dividend was eight cents per share, unchanged from a year ago.

On dividends

In the second-quarter, Keppel Corporation recorded a 21% decline in net profit.  

During its earnings briefing, Keppel Corporation was asked about its decision to maintain the interim dividend despite the profit fall. Chief executive officer, Loh Chin Hua, responded:

“Yes, there was a drop in 2Q 2017. However, if you look at 1H 2017, our earnings are about the same as last year and the $0.08 per share distribution is also the same as last year.

So it is quite in line with what we have been doing in recent times, which is looking at paying out between 40-50% of earnings in dividend.”

Keppel Corporation does not have an explicit dividend policy. But the range of 40% to 50% is consistent with what Loh has said in the past.  

On debt

The balance sheet was also a source of concern. Loh said:

“It is true that our gearing has crept up compared to prior years. But you can also see in the recent quarters that it has also stabilised.”

On 30 June 2016, the net gearing ratio was 0.62x. At the end of 2016, the ratio was 0.56x. In the latest quarter, Keppel Corporation’s net gearing was 0.58x. Loh added:

“We still have quite good head room. Our goal has always been to make sure we have an institutional quality balance sheet. That is still very much at the top of our minds.

At this level, we are comfortable with our gearing, so I am not sure we necessarily have to reduce our gearing at this point. On the interest rate hike environment, there is a big debate there how quickly the rates will move up.”

Loh said that the treasury team is closely watching developments and will use a combination of fixed and floating rates to manage the debt accordingly.

In past earnings’ calls, Loh had said that Keppel Corporation would be comfortable gearing up to one time. In this context, there is still headroom to increase borrowings. 

Foolish investors might want to keep monitoring Keppel Corporation’s balance sheet and free cash flow in the coming quarters for clues on its future dividends.  

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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.