Renewables and gas-related solutions to lift Keppel's revenue: analyst

The O&M division’s operating profit remained strong at $28m, versus $3m in Q1 2019.

The weaknesses in crude oil prices may not bring much of an impact to Keppel, particularly its Offshore & Marine unit (Keppel O&M), as 70% of its $4b orderbook came from its renewables and gas-related solutions, according to an analyst note from RHB.

The report noted that in Q1, the O&M division’s net profit was halved to $3m from $6m in Q1 2019, due to share of losses from associated companies. However, its operating profit remained strong at $28m, versus $3m in Q1 2019.

Total revenue jumped 21% to $1.86b over the same period because of higher revenues from O&M projects, property trading projects, power and gas business, and the consolidation of M1. Leng Seng Choon, analyst at RHB, believes that Keppel’s renewables and gas-related solutions will continue to be a revenue boost in the coming quarters.

Overall, Keppel reported that its net profit dropped 21% YoY to $160m in Q1 from $203m in 2019, no thanks to an absence of gain from the divestment of a 70% interest in Dong Nai Waterfront City, Vietnam in 2019. 

Meanwhile, Leng added that Keppel’s property division earnings should continue to support dividend payments, especially its properties in China. The property division’s Q1 2020 net profit of $35m was 73% lower YoY, due to a gain in Q1 2019 from the disposal of a partial interest in Dong Nai Waterfront City, Vietnam. However, Keppel Land was able to sell 450 homes in Q1 2020, which is 15% higher YoY.

“Management said that recent land sales in China (post COVID-19 lockdown) show promise as developers are bidding again and prices seem to stabilise,” Leng added.

Another earnings boost for Keppel would be its end-April sale of a 2.33% stake in Keppel DC REIT, which should give a gain of $46m to be recorded in Q2 2020. The partial offer by Temasek to acquire an additional 30.55% stake in Keppel is also likely to offer potential for value unlocking.