Keppel Ltd’s share price has pulled back from its recent high of S$6.65 in early October 2024 to the recent S$6.40 per share. It’s yearly dividends (excluding special dividends or in specie dividends) is around 33 cents to 34 cents. Hence normalised dividend yield is at around 5.3% based on its current share price of S$6.40 per share. I thought that it is a good time to accumulate more of Keppel Ltd after the recent pull-back.
The Concerns of High Debt to Equity Ratio of 0.9 Times.
Interestingly, there were some skeptics who have condemned Keppel as un-investable and unstable due to its substantial borrowings. The high gearing is due mainly to Keppel’s investment properties and property development segment as well as the infrastructure division. Nevertheless, below are 3 reasons why I would personally still invest into Keppel Ltd.
1. Shift in Business Model To Focus More on Recurring Income Instead of Capital Intensive Business
The building up of recurring income is on the right trajectory. As seen below, the recurring operating income now forms a substantial part of Keppel’s income streams-asset management and operating activities (sales of gas, electricity, telecommunication services etc amounted to S$773Mil in 2023. This is a 54% increase relative to 2022 and makes up 88% of net profit for 2023. Keppel’s strategic shift to focus on recurring income and monetisation programme will also release more funds for investments and debt repayment.
Keppel is only paying out about 60%-70% of its earnings per share as dividends to shareholders and retaining the rest for its existing businesses. For 2023, It has a diluted EPS of 49.1 cents and paying out only 34 cents as dividends.
3. Prize Jewel in Data Centres Development and Management.
Keppel has recently announced that it intends to expand its current DC capacity from 650MW to 1.2GW in the near term with an additional S$10billion funds under management growth. This will take 3-5 years as these DCs will be built from scratch at selected sites.
The DC at Genting Lane is a good illustrative example. After the development of the DC, they will monetize it by selling to Keppel DC REIT. After selling it off, Keppel will still make recurring income from the management of this investment property as Manager and also rental income from its ownership in Keppel DC REIT.
Parting Thoughts
Last but not least, Temasek Holdings holds more than 20% stake in Keppel Ltd. In the event of a full-blown financial crisis, Keppel Ltd will be able to tap on the financial might of its substantial shareholder as its final life line to avoid a fire-sales at the worst possible time. I have recently sold off S$20K of my Keppel DC REIT after its strong recovery from its record low in the past 2 years which resulted in its distribution yield dropping to only a mere 3.9% with 90%+ payout and reinvested the proceeds into Keppel Ltd.
Thanks for the confidence bro.
ReplyDeleteI got Keppel for the SMM free shares. Then the freebies keep coming. All on top of the 33c dividend. Just like how SCI floated after cutting off SMM, same thing happening to Keppel now.
Hi Damn, yup, the monetisation has many non-cash distribution for us shareholders wor.
DeleteHey Blade, can I get some help here: I'm trying to find out about the legacy Rigs. they are put in Asset Co. and not given to Seatrium.
ReplyDeleteLast I check its $2.5/KC share. Is this included in its NAV calculation?
Hi Damn, yup it is included in by right. Keppel received it mostly in the form of "Vendor Notes Receivables" recorded on its Non-Current Asset: It received S$4.25 billion in vendor notes, S$120 million in perpetual securities and a 10 per cent equity stake in Asset Co with a value of about S$499,000, as consideration for the transfer of certain Keppel O&M assets including the legacy rigs and associated receivables to Asset Co.
DeleteCurrent book value is $5.80. So asset co. at $2.5, is 43% of Keppel's NAV now?
ReplyDeleteHi Damn, if you are looking at the notes, then yes, it is definitely included as part of Keppel’s NTA and measured at fair value through P&L. It matures only 12 years later from when they completed the deal last year and saying that, there is another 3 years option to extend the maturity. So there is a market risk for 15 years holding on to them.
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