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Keppel Corporation's 2HFY2022 earnings drop by 40.6% y-o-y to $429.1 mil

The group has proposed a final dividend of 18.0 cents per share, bringing the total year's dividend to 33 cents per share.

Keppel Corporation has reported earnings of $429.1 million for the 2HFY2022 ended Dec 31, 2022, 40.6% lower than the earnings of $722.9 million in the corresponding period the year before.

This brings earnings for the FY2022 to $926.6 million, 9.4% lower y-o-y.

Keppel’s revenue for its continuing operations fell by 12.3% y-o-y to $3.26 billion for the 2HFY2022 as revenue from the group’s energy & environment and urban development segments fell. Revenue from connectivity remained stable y-o-y while revenue from asset management increased.

Group net profit from continuing operations fell by 55.2% y-o-y to $405 million. The energy & environment segment was the only one that saw improvements in its net profit, which came in at $127 million, reversing from the loss of $54 million in the 2HFY2021.

Meanwhile, the rest of the segments saw lower net profit for the period. The urban development segment saw net profit decline on a y-o-y basis mainly from lower contributions from property trading projects in China, lower fair value gains from investment properties, as well as lower gains from enbloc sales. The group also saw lower net profit from its connectivity segment due to the absence of gain from the divestment of Wuhu Sanshan Port Company Limited in 2021 and lower fair value gains from data centres, which was partly offset by higher net profit from M1.

The group’s asset management segment also saw lower net profit mainly due to mark-to-market losses from investments, lower fair value gains on data centres recorded by Keppel DC REIT and private funds, as well as the absence of dilution gain arising from Keppel DC REIT’s private placement exercise in 2021.

Operating profit for the 2HFY2022 plunged by 77.2% y-o-y to $210.4 million as expected credit loss on financial assets, contract assets and financial guarantee more than doubled to $32.0 million from $13.2 million in the 2HFY2021.

The lower operating profit was also due to the other operating expense of $64.9 million, down from the $698.2 million in other operating income for the 2HFY2021.

Profit before tax for the 2HFY2022 fell by 48.0% y-o-y to $544.1 million.

During the FY2022, revenue grew slightly at 0.1% y-o-y to $6.62 billion as revenue increased across all segments except for the urban development segment, which fell due to lower revenue from property trading projects in China as a result of fewer units completed and handed over during the year.

Group net profit from continuining operations for the FY2022 fell 33% y-o-y to $839 million. The energy & environment segment reversed from its net loss of $189 million in the FY2021 to see net profit of $172 million in the FY2022. Net profit from the asset management segment also grew y-o-y. This was offset by the lower net profit from the urban development and connectivity segments.

Operating profit for the FY2022 fell by 50% y-o-y to $565.2 million as materials, subcontract, as well as staff costs increased slightly. Other operating income fell by 96.7% y-o-y to $28.3 million.

Of the segments, the group’s asset management segment was the largest contributor to overall earnings with a net profit of $311 million. This was followed by urban development, energy & environment and connectivity in that order.

Notably, the energy & environment sector saw a sharp reversal in net profit from a net loss of $414 million in FY2021, which had included an impairment of $318 million related to the group’s exposure to KrisEnergy, to a net profit of $260 million in FY2022. This waspartially offset by share of Floatel’s net restructuring gain of $215 million.

Earnings per share (EPS) for the 2HFY2022 and FY2022 came in at 24.0 cents and 51.6 cents respectively on a fully diluted basis.

As at Dec 31, 2022, the group’s net gearing stood at 0.78x, higher than the 0.68x the year before mainly due to a higher level of investments, the payment of dividends, as well as the $500 million share buyback programme which was completed within 2022.

Cash and cash equivalents stood at $1.44 billion as at Dec 31, 2022.

Dividends

The board has proposed a final cash dividend of 18.0 cents per share, bringing the total cash dividend for the FY2022 to 33.0 cents per share, unchanged from FY2021.

The proposed final dividend, if approved at the group’s annual general meeting (AGM) held on April 21, will be paid out on May 10.

If Sembcorp Marine’s (SembMarine) acquisition of Keppel Offshore & Marine is approved by the former’s shareholders, Keppel shareholders will receive about 19.1 SembMarine shares with an implied value of $2.33 for every Keppel share held on completion of the proposed O&M transactions.

According to Keppel Corporation, the group would have booked a pro forma disposal gain of approximately $3.4 billion or $1.94 per Keppel Corp share from the SembMarine shares received had the proposed O&M transactions been completed at the end of FY2022.

On the same pro forma basis, Keppel Corporation’s net tangible assets (NTA) per share would have increased from the reported $5.51 to $7.56 after the completion of the transactions. Following the distribution in specie, Keppel Corporation’s pro forma NTA would be reduced from $7.56 to $5.23 per share, which is close to the reported NTA of $5.51 per share at the end of FY2022.

“Keppel continued to deliver a robust set of results amidst a difficult environment in 2022 whilst accelerating the execution of our Vision 2030 strategy. Today, asset management led by Keppel Capital and our growing energy & environment segment led by Keppel Infrastructure are key pillars of the group’s earnings,” says Loh Chin Hua, CEO of Keppel Corporation.

Loh emphasised his plans to move away from an orderbook business and lumpy property development profits to focus on growing recurring income. For FY2022, recurring income more than doubled y-o-y and made up $560 million or 67% of the group’s earnings, an increase of 114% from $262 million in FY2021.

He adds: “Working together with our private funds and business trust, we announced about $2.8 billion of joint investments during the year. Through tapping third-party funds, we can scale up in our growth areas swiftly without raising our gearing significantly. 2023 will be an important year for Keppel, as we take the next leap forward in our Vision 2030 trajectory to be a global asset manager and operator, creating solutions for a sustainable future.”

During the Q&A segment of the briefing, CFO Chan Hon Chew clarified that the net fines paid by Keppel O&M in relation to its corruption case in Brazil had "no material impact" on the decision regarding dividend distribution.

Shares in Keppel Corporation closed 1 cent higher or 0.13% up at $7.65 on Feb 2.

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