Keppel share price: Analysts raise targets despite lower profits in 2019

Lower profits across Keppel Corporation’s 2019 fiscal year did not stop analysts from raising their share price targets.

Singapore offshore and marine conglomerate Keppel Corporation last week announced its fourth quarter results for the 2019 fiscal year.

Across the quarter, the group’s net profit grew 42% year-on-year to S$192 million from S$135 million, thanks to stronger performance across the Offshore & Marine, Property and Investments divisions.

Group revenue for this quarter also improved, coming in at S$2,198 million, 31% higher than the S$1,677 million achieved a year ago. The company said this was due to ‘higher recognition’ of ongoing offshore & marine and infrastructure projects, the consolidation of telecommunications provider M1 (which Keppel acquired in 2019), and higher asset management revenue.

Annualised earnings below analyst expectations

However, across the full year, net profits attributable to company shareholders missed broker targets, as it fell 25.5% to S$707 million from S$948 million in FY2018.

CIMB research analyst Lim Siew Khee, for one, had predicted an annual net profit of S$713 million.

The group explained that the drop was largely because it had benefitted from S$584 million in gains through the en-bloc sales of development projects and property divestments in 2018.

Earnings per share (EPS) for the year at S$0.39 was also below analysts’ estimates of S$0.44 per share. Year-on-year, EPS is down 26% from 2018.

From a segmented perspective, the Offshore & Marine (O&M) division performed the best in terms of growth out of all segments, registering a net profit of S$10 million for the year, as compared to a net loss of S$109 million a year prior

The Property division again made the highest contribution to bottom line at 73%, with net profits of S$517 million for the year. However, this was 45% lower year-on-year, due mainly to lower gains from the en-bloc sales of development projects and divestments.

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Keppel Corp’s share price prediction and FY2020 outlook

Despite the lower-than-expected annual net profits and EPS, analysts remain optimistic about the company’s financial and equity outlook this year.

Chokwai Lee, Senior Equity Analyst, Morningstar Inc., wrote that the firm’s shares ‘remain undervalued’, considering the company’s diversified portfolio, as well as an ‘improving outlook for the O&M sector’.

On that note, he forecasts new contract wins of S$3 billion in 2020, which would represent a 50% year-over-year increase. In the meantime, Morningstar reduced its fair value estimate on share price marginally to S$8.10 from S$8.30 per share.

RHB Invest financial analyst Leng Seng Choon was ‘bullish’ in his outlook, as he also expects O&M earnings to improve, supported by the division’s 2019 net orderbook of S$4.4 billion. He also reiterated a ‘buy’ rating on Keppel shares, on the basis of a ‘16% upside plus c.4% FY20 yield’.

UOB Kay Hian’s Adrian Loh stated that the outlook for the various business divisions ‘appears robust’, highlighting that property sales are likely to keep growing alongside continued new order contract wins for O&M (he estimates that this will amount to US$2 billion this year).

Reflecting this view, Loh increased earnings estimates for Keppel’s FY2020 and FY2021 by 11% and 8% respectively, while raising his share price target from S$7.61 per share to S$7.75 per share.

CGS-CIMB, however, had the most bullish price target at S$8.36 per share as of 20 January, adding that much of this forecast is predicated on Singapore’s sovereign wealth fund Temasek Holdings’ pending offer to purchase an additional 30.55% of Keppel shares by October this year.

Keppel Corporation CEO Loh Chin Hua also provided the following guidance in the latest earnings release: ‘As we progress beyond 2020, we see Keppel growing as one integrated business providing solutions for sustainable urbanisation. We will continue to deepen collaboration and draw on the synergies of the group to deliver value to all our stakeholders.”

Wuhan coronavirus: ‘No direct impact’

In other news, the Wuhan coronavirus, which has rocked major Asia financial markets in recent days, largely remains a non-factor for the conglomerate.

‘So far, we have not had any direct impact on Keppel Corp’, said Loh, clarifying that the company currently employs about 170 staff in Wuhan, alongside other operations across China.

‘We have advised our operations there and our staff there to take the necessary precautions. We are watching this very closely,’ he added.

Keppel Corporation's shares are down 2.48% so far this year. Shares are trading at S$6.69 per share as of 30 January, 5PM.

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