Singapore | Industrials Asia Pacific Equity Research

KEPPEL CORPORATION | BUY

8 Jun 2017
MARKET CAP: USD 8.4B AVG DAILY TURNOVER: USD 19M Company Update

BUY (maintain)
TO BE A TRUE CONGLOMERATE
Fair value S$7.36
Harnessing synergies add: 12m dividend forecast S$0.20
Well-positioned to ride property upturn versus: Current price S$6.42
Asset management for various real assets 12m total return forecast 18%

Analysts
Multi-business group Low Pei Han, CFA (Lead) +65 6531 9813
Though almost synonymous with Offshore & Marine, Keppel Corporation [email protected]
is a multi-business group with different verticals in the same line of Eugene Chua +65 6531 9678
providing solutions for sustainable urbanisation such as energy, [email protected]

infrastructure, clean environments, high quality homes and offices. In

FY16, property contributed S$620m in net profit (79%), followed by Key information
Market cap. (m) S$11,638 /
infrastructure at S$99m (13%), investments at S$36m and offshore &
USD8,420
marine at S$29m.
Avg daily turnover (m) S$26 /
USD19
Property sales still healthy; well-positioned to ride on upturn Avg daily vol. (m) 4.4
The general outlook for property markets in Asia remains positive in the 52-wk range (S$) 5.13 - 7.23
long term, driven by continuing urbanisation. Keppels core markets are Free float (%) 99.9

Singapore, China, as well as Vietnam and Indonesia. It also has a Shares o/s. (m) 1,812.8
Exchange SGX
foothold in Myanmar. In China, Keppel is focused on the five key cities
BBRG ticker KEP SP
of Shanghai, Beijing, Tianjin, Chengdu and Wuxi. Despite property
Reuters ticker KPLM.SI
cooling measures in selected cities in China, the group sold over 3,800 SGX code BN4
units and handed over some 3,480 units in 2016. Sales in China GICS Sector Industrials
contributed to about 65% of the total 5,720 residential units that Keppel Industrial
GICS Industry Conglomerates
Land sold in 2016. In Singapore, Keppel sold 380 units, double the 190 Top shareholder Temasek - 20.7%
units in 2015. With its landbank of 1.3m sq ft in prime locations, Keppel
is well-positioned to ride on a recovery in the residential market when it Relative total return 1m 3m 12m
occurs. Keppels residential landbank in Singapore and overseas total Company (%) -2 -8 22
8.4m sm of GFA, translating to a pipeline of about 66,000 homes, STI-adjusted (%) -2 -13 4
mostly in China and Vietnam. The group has also diversified into other
Price performance chart
segments such as office, retail and lifestyle developments overseas.

Collaboration across verticals

In the infrastructure segment, Keppel is involved in energy and
environmental infrastructure (Keppel Infrastructure), as well as data
centres and logistics (Keppel T&T). With Keppel Capital, the group is
also able to connect investors with high-grade real assets such as data
centres, power and desalination plants, LNG vessels and FPSOs. Co-
investments also allow the group to grow faster without putting a strain
on its balance sheet. As such, we expect to see the asset management
business to gain increasing prominence in the group. Maintain BUY with
fair value estimate of S$7.36 on Keppel Corp. Sources: Bloomberg, OIR estimates

Key financial highlights Industry-relative metrics

Year Ended 31 Dec (S$ m) FY15 FY16 FY17F FY18F

Revenue 10,296.5 6,767.3 5,184.4 5,799.1
Operating profit 1,513.6 795.2 751.2 879.5
EBITDA 1,733.7 1,031.7 1,029.0 1,163.6
Profit attributable to shareholders 1,524.6 783.9 831.9 815.0
Core EPS (S cents) 84.1 43.2 45.8 44.9
Cons. EPS (S cts) na na 47.6 52.0
NTA per share (S$) 16.2 20.8 20.0 20.2
Net profit margin (%) 14.8 11.6 16.0 14.1
ROE (%) 13.7 6.7 6.8 6.4
Price/NTA (x) 1.1 1.0 1.0 0.9
Note: Industry universe defined as companies under identical GICS classification listed on
the same exchange.
Sources: Bloomberg, OIR estimates

Please refer to important disclosures at the back of this document. MCI (P) 003/06/2017
 OCBC Investment Research
Singapore Equities

Exhibit 1: Sum-of-parts valuation

Entities Direct stake (%) Valuation Value % of SOTP
(S$m)
Offshore & Marine
Keppel O&M 100.0% 1x P/B 1,903 12.8%

Property
Keppel Ba y Project 70.0% Res i dua l va l ue 700 4.7%
Property s egment 100.0% 1x P/B 9,111 61.5%

Infrastructure
Keppel T&T 79.5% Ma rket va l ue 776 5.2%
Power & Envi ronmental 100.0% 10x norma l i s ed EPS 1,060 7.1%
Keppel Infra s tructure Trus t 18.2% Ma rket va l ue 382 2.6%
Keppel DC REIT 4.9% Ma rket va l ue 72 0.5%

Investments/Capital
Keppel Ca pi tal 100.0% 20x FY17F EPS 1,300 8.8%
K1 Ventures 36.0% Ma rket va l ue 100 0.7%
Kri s Energy 40.2% Ma rket va l ue 84 0.6%
Dyna -Ma c Hol di ngs 25.2% Ma rket va l ue 38 0.3%

Add net cash/(debt) ex property -3,865 -26.1%

Shares outstanding (m) 1,813
Total 14,826
Discount 10%
SOTP Fair Value 7.36
Source: OIR estimates, Bloomberg

2
 OCBC Investment Research
Singapore Equities

Company financial highlights

Income statement
Year Ended 31 Dec (S$m) FY15 FY16 FY17F FY18F

Revenue 10,296.5 6,767.3 5,184.4 5,799.1

Operating profit 1,513.6 795.2 751.2 879.5
EBITDA 1,733.7 1,031.7 1,029.0 1,163.6
Finance costs & invt income -20.6 -85.3 -87.1 -87.1
Associates and JV 504.3 345.0 310.5 307.4
Exceptionals 199.7 -138.1 148.1 0.0
Pre-tax profit (excl. EI) 1,797.7 1,193.0 974.6 1,099.8
Profit before tax 1,997.4 1,054.9 1,122.7 1,099.8
Minority interests -68.3 -37.8 -43.8 -42.9
Profit attributable to shareholders 1,524.6 783.9 831.9 815.0

Balance sheet
As at 31 Dec (S$m) FY15 FY16 FY17F FY18F

Cash and cash equivalents 1,892.8 2,087.1 1,276.5 1,691.9

Other current assets 14,616.6 14,303.4 13,822.1 14,154.0
Property, plant, and equipment 2,845.5 2,645.5 2,767.7 2,883.6
Total assets 28,920.6 29,234.2 28,330.2 29,472.5
Debt 8,258.7 9,053.0 9,053.0 9,053.0
Current liabilities excluding debt 7,925.4 7,335.2 5,881.9 6,420.5
Total liabilities 16,994.7 16,900.5 15,408.5 15,947.1
Shareholders equity 11,095.7 11,658.9 12,203.2 12,764.0
Total equity 11,925.9 12,333.6 12,921.7 13,525.3
Total equity and liabilities 28,920.6 29,234.2 28,330.2 29,472.5

Cash flow statement

Year Ended 31 Dec (S$m) FY15 FY16 FY17F FY18F

Op profit before working cap. changes 1,328.7 1,210.6 920.9 996.1

Working cap, taxes and int -2,114.2 -878.2 -1,268.3 -290.9
Net cash from operations -785.5 330.0 -347.3 705.3
Purchase of PP&E -1,158.4 -466.2 -400.0 -400.0
Other investing flows 1,365.0 156.3 295.3 364.3
Investing cash flow 206.6 -309.9 -104.8 -35.7
Financing cash flow -3,302.4 132.5 -290.2 -254.2
Net cash flow -3,881.3 152.6 -742.3 415.4
Cash at beginning of year 5,712.4 1,892.8 2,087.1 1,276.5
Cash at end of year (incl ODs) 1,892.8 2,087.1 1,276.5 1,691.9

Key rates & ratios FY15 FY16 FY17F FY18F

EPS (S cents) 84.1 43.2 45.8 44.9

NTA per share (S$) 6.1 6.4 6.6 7.0
Gross profit margin (%) 16.2 20.8 20.0 20.2
Net profit margin (%) 14.8 11.6 16.0 14.1
PER (x) 7.6 14.8 14.0 14.3
Price/NTA (x) 1.1 1.0 1.0 0.9
EV/EBITDA (x) 10.4 18.0 18.9 16.3
Dividend yield (%) 5.3 3.1 2.2 2.2
ROE (%) 13.7 6.7 6.8 6.4
Net gearing (%) 53.4 56.5 60.2 54.4

Sources: Company, OIR forecasts

Company financial highlights

 OCBC Investment Research
Singapore Equities

SHAREHOLDING DECLARATION:

The analyst/analysts who wrote this report holds/hold NIL shares in the above security.

DISCLAIMER FOR RESEARCH REPORT

This report is solely for information and general circulation only and may not be published, circulated,
reproduced or distributed in whole or in part to any other person without the written consent of OCBC
Investment Research Pte Ltd (OIR or we). This report should not be construed as an offer or solicitation
for the subscription, purchase or sale of the securities mentioned herein or to participate in any particular
trading or investment strategy. Whilst we have taken all reasonable care to ensure that the information
contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee its
accuracy or completeness, and you should not act on it without first independently verifying its contents. Any
opinion or estimate contained in this report is subject to change without notice. We have not given any
consideration to and we have not made any investigation of the investment objectives, financial situation or
particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given
and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the
recipient or any class of persons acting on such information or opinion or estimate. You may wish to seek
advice from a financial adviser regarding the suitability of the securities mentioned herein, taking into
consideration your investment objectives, financial situation or particular needs, before making a commitment
to invest in the securities. In the event that you choose not to seek advice from a financial adviser, you should
consider whether investment in securities and the securities mentioned herein is suitable for you. Oversea-
Chinese Banking Corporation Limited (OCBC Bank), Bank of Singapore Limited (BOS), OIR, OCBC
Securities Pte Ltd (OSPL) and their respective connected and associated corporations together with their
respective directors and officers may have or take positions in the securities mentioned in this report and may
also perform or seek to perform broking and other investment or securities related services for the
corporations whose securities are mentioned in this report as well as other parties generally.

The information provided herein may contain projections or other forward looking statements regarding future
events or future performance of countries, assets, markets or companies. Actual events or results may differ
materially. Past performance figures are not necessarily indicative of future or likely performance.

Privileged / confidential information may be contained in this document. If you are not the addressee
indicated in this document (or responsible for delivery of this message to such person), you may not copy or
deliver this message to anyone. Opinions, conclusions and other information in this document that do not
relate to the official business of OCBC Bank, BOS, OIR, OSPL and their respective connected and
associated corporations shall be understood as neither given nor endorsed.

RATINGS AND RECOMMENDATIONS:

- OCBC Investment Researchs (OIR) technical comments and recommendations are short-term and trading
oriented.
- OIRs fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-month investment
horizon.
- As a guide, OIRs BUY rating indicates a total expected return in excess of 10% based on the current price;
a HOLD rating indicates total expected returns within +10% and -5%; a SELL rating indicates total expected
returns less than -5%.
- For companies with market capitalization of S$150m and below, OIRs BUY rating indicates a total expected
return in excess of 30%; a HOLD rating indicates total expected returns within a +/-30% range; a SELL rating
indicates total expected returns less than -30%.

Co.Reg.no.: 198301152E

Carmen Lee
Head of Research
For OCBC Investment Research Pte Ltd

Published by OCBC Investment Research Pte Ltd

Important disclosures