Weak O&M pushes Keppel Corp to focus on property arm

Property accounted for 46% of FY15 profits.

Keppel Corp (KEP) should be increasingly regarded as a property player, with the privatisation of Keppel Land.

According to OCBC, KEP’s offshore and marine segment could see sustained lack of earnings clarity with low oil prices. In FY15, property already accounted for 46% of the group’s net profit, while O&M contributed 32% and infrastructure 14%.

In OCBC’s sum-of-parts valuation, KEP’s property arm accounts for about 72% of the group’s total value on back of the low book value of the O&M segment. Over the years, sizeable funds have been paid back to the group in the form of dividends and deployed to the property segment.

Moreover, KEP has been in the property business for the past 30 years. According to the group, Keppel Land’s ROE is one of the highest amongst Asia’s leading property developers at 18.9% pa from 2006 to 2015.

But more importantly, the group is gunning to be seens as an asset manager and value creator in its other businesses. KEP continues to see opportunities in waste-to-energy market, data centre and logistics segments.

The group has the expertise to engage in turn-key projects, accrue value, and finally spin off the assets to unlock value. In addition, KEP is delineating its asset management businesses more clearly, consolidating them under Keppel Capital. The asset management segment manages $26b of assets and contributed $60m of profit in 2015.

Despite this, O&M is likely to remain a drag for now. Meanwhile, with the recent rebound in oil prices, valuations for O&M stocks have also recovered.