Keppel Ltd Generated a 61% Total Return in 2023: Can the Asset Manager Continue to Impress?

The bellwether Straits Times Index pulled off a lacklustre performance last year, ending 0.3% below its 2022 close.

However, there were a few standout performers within the blue-chip index.

One of these stocks was Keppel Ltd (SGX: BN4).

The conglomerate-turned-asset manager pulled off a stunning 61% total return last year.

Keppel has been growing its business steadily over the past year, leading investors to wonder – can the group pull off a similar performance for 2024?

Let us find out.

Solid sets of financial metrics

Keppel reported a robust set of financial results for the first nine months of 2023 (9M 2023) as well as progress for its asset monetisation target.

Revenue for 9M 2023 grew 5% year on year to S$5.3 billion, driven by top-line growth for its Infrastructure and Connectivity divisions but offset by a weaker performance for the Real Estate division.

Net profit for this period was significantly higher year on year, even after excluding discontinued operations.

The asset manager has also delivered close to S$2.70 per share in cash dividends and distribution-in-specie of shares in both Seatrium Ltd (SGX: S51) and Keppel REIT (SGX: K71U).

Over at the fund management and investments segment, Keppel grew its funds under management (FUM) from S$25 billion in 2016 to S$53 billion by the first half of 2023.

As a result, asset management fees more than doubled from S$128 million in 2016 to S$267 million in 2022.

Next, on asset monetisation, Keppel had a target of between S$3 billion and S$5 billion by 2023. 

On this note, the asset manager has exceeded its goal, recording  S$5.3 billion of asset divestments.

By the end of 2026, Keppel plans to increase its asset monetisation to between S$10 billion and S$12 billion before hitting S$17.5 billion by 2030.

These numbers above are an indication to management’s resolve in achieving multiple financial, FUM, and asset management targets and the group has made steady progress on these objectives thus far.

Accelerated growth under Vision 2030

Vision 2030 was announced in May 2020. 

The current year will be the fourth year of this long-term programme..

The goals of this plan remain the same – going asset-light and achieving a return on equity of 15%.

In May last year, Keppel boldly announced a major reorganisation to accelerate growth under Vision 2030 and chart the next phase of its multi-year transformation.

The group will be split into three distinct platforms that act as a simplified structure to help spur faster growth.

Under this new structure, there will be a fund management platform focused on raising capital and forging relationships with investors.

Next, the investment platform will oversee capital deployment decisions to create value for investors.

Finally, Keppel’s operating platform will specialise in providing sustainable solutions and help the group drive innovation.

With these three pillars, Keppel hopes to ignite a virtuous cycle to achieve its eventual S$200 assets under management (AUM) target.

Recent initiatives

Management has been busy building the business since announcing the organisational changes more than seven months ago.

Back in October, Keppel successfully closed S$300 million for its Sustainable Urban Renewal programme.

The company is targeting around S$728 million in AUM when fully leveraged and invested.

In that same month, the group also achieved the first closing of US$575 million for its flagship evergreen infrastructure fund, Keppel Core Infrastructure Fund, with an initial target size set at US$2.5 billion.

Just last month, Keppel announced the acquisition of European asset manager Aermont Capital, immediately adding S$24 billion of FUM to Keppel’s current FUM and lifting it to S$77 billion.

The asset manager also established partnerships for its operating platform to explore sustainability solutions.

Last month, Keppel collaborated with GenZero by signing a memorandum of understanding (MOU) to explore projects that drive early retirement of coal-fired power plants.

These initiatives involve the switch to energy alternatives and the production of sustainable fuels.

Another MOU was signed in the same month with Masdar from Abu Dhabi to jointly collaborate on opportunities for decarbonisation and sustainability solutions in ASEAN and the Middle East.

Earlier this month, Keppel signed an MOU with industry leaders such as Chevron Singapore, Surbana Jurong, and Osaka Gas Singapore to collaborate on lower carbon opportunities to support Singapore’s net-zero emissions aspirations by 2050.

Get Smart: On track for a good performance

Keppel has advanced on its multiple initiatives since announcing its major reorganisation last May.

The asset manager looks on track for a good performance with these collaborations and acquisitions.

However, investors should note that some of these initiatives are in their infancy and will require a gestation period before they can contribute positively to Keppel’s bottom line.

That said, it is encouraging that Keppel is heading in the right direction and it will be a matter of time before this progress shows up in its share price.

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

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