06 August, 2017

Keppel Corporation: Closing at its NAV

Keppel Corporation (BN4) is one of the few best known STI components even to non-investors. Its shares have plunged extensively since its glory days, to price levels last seen in the 2008 recession. Its dividends yield has also dropped to a low 3% this year. This can either signal a great discount or a big warning sign. While Sembcorp's assets and revenue are mostly focused on Utilities, Keppel Corp’s key earnings and assets came mostly from its Property sector. Nevertheless, both conglomerates are well known of its marine sector, which has performed unpleasantly in recent years. This has led to both stocks losing almost half its share prices since 2014.
I have earlier rated Keppel Corp at 8.5/10 in another post with limited details shared. Upon reading the recent 2Q 2017 financial reports, I decided to give Keppel Corp a deeper dive. Here are my findings:

1. The Group’s debt has now risen slightly in 1H 2017. The Group’s gearing has increased by 0.02 to 0.58 since December 2016, attributed by a slight increase in Total Liabilities and a slight decrease in Total Equity/ Net Assets.

2. It was noticed that there are numerous negative figures found in the recent financial report. Profit wise, Q2 2017 was indeed a poor quarter for Keppel Corp (-29.4%) while overall 1H 2017 has performed flat (-4.5%).

3. While Revenue has dropped around 17% in 1H 2017, net profit has risen 1% as compared to 1H 2016. Similar to what was mentioned earlier, the below shows that BN4 has performed badly in Q2 2017 where net profit has dropped 21% year on year. They have their Q1 results to thank for boosting their overall 1H results.

4. Keppel Corp’s property segment has contributed to 47% of the Group’s Net Profit. With this note, Keppel Reit may be a better investor’s choice due to the improving sentiments and market situation.  Despite the marine segment being the second largest asset base of Keppel, it has contributed to a net loss as compared to the 2 smaller segments Infrastructure and Investments.

5. Keppel Corp is vastly concentrated in Singapore despite its diversified business model. Around 51% of its non-current assets are from Singapore, which is a risk factor to consider as well.  

6. Net Asset value has fallen slightly to $6.40. NAV is just a guide, there are many other factors to consider. It may be easy to accumulate some shares below this price but the ultimate question is : Will its NAV fall even further in the coming years?

Despite Keppel Corp being a popular choice among the public over Sembcorp Industries, I personally prefer Sembcorp Industries as its price to book is lower and its core earnings are from the Ultilities segment (which is defensive in nature but also facing recent rising competition). If you are considering between Sembcorp and Keppel Corp, you can also read my earlier analysis on Sembcorp Industries here.

For more details on Keppel Corporation's 2Q financial report, please visit this link.

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