The headline numbers were indeed positive; Keppel Corporation Limited’s (SGX:BN4) revenue and net profit for the first quarter of 2018 grew 18% and 34% respectively. However, beyond those numbers, there are certainly aspects of the business to suggest that all is not as rosy as the headlines may seem to suggest.
Poor performance from the offshore & marine segment
Keppel Corp breaks down its operations into four main business segments – offshore & marine, property, infrastructure and investments.
The offshore & marine segment comprises repair and building of drilling rigs, power barges, specialised vessels and other offshore production facilities. This segment is traditionally dependent on the oil and gas sector.
Unfortunately, despite oil price increasing over the past two years, Keppel Corp has been unable to turn its offshore & marine business around. The division recorded just S$332 million in revenue this quarter, down 31% from the SS$483 million seen during the same period last year. Worryingly, the division ended with a loss of S$23 million for the quarter.
A one-off gain from the property segment skewed revenue and profit
Much of the increase in revenue for the quarter was due to a one-off divestment gain of Keppel Cove in Zhongshan, China. Excluding the one-off gain, net profit from the segment would only have been S$89 million instead of S$378 million. The chart below shows the representation of net profit from each of the four segments.
Source: Keppel Corporation 2018 Q1 results presentation
As you can see, a disproportionate amount of net profit was from the property segment.
Even with new projects under way, including both commercial and residential development projects, the returns from the projects are going to be lumpy. It is, therefore, important that shareholders realise that revenue and profit contribution from this segment will fluctuate over the longer term.
Poor performances from the investments and infrastructure segments
Finally, Keppel Corp reported poor performances in both its infrastructure and investments segments. Net profit from the infrastructure segment declined a substantial 19% to S$26 million, while its investments arm reported a net loss of S$44 million. This was a reversal from the net gain of S$125 million a year ago.
The Foolish bottom line
Keppel Corp’s shareholders may understandably be happy with the conglomerate’s headline improvement in revenue and profit. However, beyond those numbers lie concerning trends that suggest there are areas that can be improved upon.
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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 Jeremy Chia owns shares in Keppel Corporation Limited.