Keppel Ltd Chalks Up a Record-High Profit of S$4.1 Billion and Increases Dividends to S$0.34: 5 Highlights from the Asset Manager’s 2023 Earnings

It has been an exhilarating ride for investors of Keppel Ltd (SGX: BN4).

The asset manager has undergone a stark transformation in the past two years that has seen the group morphing from a conglomerate to an asset-light outfit.

This transformation began with the divestment of its offshore and marine (O&M) unit back in late 2022 and was followed up by a major reorganisation in May last year.

Last week, Keppel announced its 2023 earnings with much fanfare as the group reported its highest-ever net profit of S$4.1 billion.

Here are five salient highlights from Keppel’s latest earnings report.

1. A blowout set of earnings

Revenue for 2023 rose 5.2% year on year to S$6.9 billion, with two out of Keppel’s three segments posting year-on-year revenue growth.

Operating profit for the group surged 90.4% year on year to S$1.1 billion.

Net profit more than quadrupled year on year to S$4.1 billion with the sale of its O&M division generating a net profit of S$3.2 billion.

Excluding this exceptional item, the profit from continuing operations rose 6% year on year to S$885 million.

This net profit also included a loss from the distribution-in-specie of Keppel REIT’s (SGX: K71U) units.

Removing this item, core net profit would have risen 19% year on year to S$996 million for 2023.

The group also generated a free cash outflow of S$862.7 million, nearly double the negative free cash flow of S$436.6 million in 2022.

In tandem with the good results, Keppel has proposed a final cash dividend of S$0.19 per share, taking the total dividend for 2023 to S$0.34, a slight increase from 2022’s S$0.33.

Keppel has done well over the past two years from a total shareholder return perspective.

Last year, the asset manager generated a total shareholder return (TSR) of 61.1% while 2022 saw the group chalk up a TSR of 49.3%.

These returns have handily beaten the bellwether Straits Times Index (SGX: ^STI) returns of 8.3% for 2022 and 4.7% for 2023.

2. All three segments were profitable

All three of Keppel’s segments were profitable, with improved performances chalked up by Infrastructure and Connectivity.

The infrastructure division was the star performer with its net profit more than doubling year on year to S$699 million.

The robust performance was attributed to higher net generation along with margins from the integrated power business.

The division was also aided by fair value gains and the lack of a capital recycling loss in 2022.

The Real Estate division reported a net profit of S$426 million excluding a one-off loss, down 8% year on year.

The division was hit by higher overheads and lower fair value gains on investment properties.

The connectivity division enjoyed a strong performance with net profit jumping 30% higher year on year at S$127 million.

3. Growing its base of recurring income

Keppel has grown its recurring income base significantly in 2023 with a 54% year-on-year leap to S$773 million.

The bulk of this recurring income came from the Infrastructure division with the remainder coming from Connectivity.

What’s more, 80% of the net profit from continuing operations was recurring for 2023, up from just 60% back in 2022.

4. Building its infrastructure platform to grow FUM

Funds under management (FUM) is another area of growth for Keppel.

FUM grew by 58% year on year to S$79 billion in 2023 as Keppel acquired Aermont Capital late last year and saw organic FUM growth.

Infrastructure is one of the fastest-growing asset classes globally and Keppel’s Core Infrastructure Fund achieved US$575 million on its first close.

The group’s fund management platform also saw a China-focused sustainable urban renewal programme that raised S$300 million.

Management highlighted that more than S$14 billion in asset and merger and acquisition deals are being pursued to help further grow FUM.

As FUM increases, asset management fees will also rise in tandem.

For 2023, asset management fees saw an increase of 6% year on year to S$283 million.

Keppel aims to grow its FUM to S$200 billion by 2030, a goal it communicated during last year’s Investor Day.

5. Surpassed its monetisation target

On its asset monetisation front, Keppel has also done exceptionally well.

A total of S$5.4 billion of assets were monetised since October 2020, exceeding its goal of monetising between S$3 billion to S$5 billion of assets over three years.

Through this exercise, around S$4.1 billion of cash was released and used to advance Keppel’s asset-light strategy.

Get Smart: An improvement in ROE

This flurry of activity has benefitted Keppel’s return on equity (ROE).

ROE came in at 7.3% in 2022 and has risen to 9.3% for 2023 after excluding the exceptional gain and loss from the distribution-in-specie.

With the blue-chip group’s asset-light strategy and focus on recurring income from growing FUM, investors could see this ROE improve steadily in the years to come.

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Disclosure: Royston Yang does not own shares in any of the companies mentioned.

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