Keppel's earnings revival remains distant as property and O&M arms take hit

The M1 acquisition and Keppel Capital's expansion into new assets may pressure cashflow.

The earnings outlook of Keppel Corporation is likely to remain muted as its many market segments continue to book disappointing performances in Q3, according to UOB Kay Hian (UOBKH).

Keppel’s headline Q3 net profit of $225.7m fell 22% short of consensus estimates as the firm cited losses from its offshore and marine (O&M) segment and investment divisions.

Also read: Keppel profits dropped 14.9% to $225.67m in Q3

Revenue from Keppel’s property business plunged 67% to $180m in Q3 despite strong home sales figure at 1,760 sold units. The O&M segment also remained lacklustre after reporting a net profit of $1.5m.

“With the key property business seeing a slowdown, and the O&M business still in the doldrums, it is difficult to see an earnings recovery for Keppel,” analyst Zhi Wei Foo said. “Dividends could come under pressure as cashflow is re-directed to support future developments.”

Whilst a $20m revaluation gain was recognised from Keppel Reit, higher expenses from initiatives started by Keppel Capital dragged the asset management business Foo said.

“Keppel’s various initiatives such as the acquisition of M1 and expansion into new assets for Keppel Capital are likely to be capital intensive,” Foo noted. 

As a result, UOBKH slashed its forecast 38% for core earnings in 2018, whilst forecasts for 2019-20 remain unchanged at $782m (-1%) and $994m (-1%) respectively. UOBKH also lowered the target price to $6.79.

“Keppel’s businesses continue to face headwinds, and until catalysts emerge pointing to a clear recovery we prefer to stay cautious,” added Foo.