Keppel Corporation’s plan to transform itself into a global asset manager has been well received by investors and analysts, as the chief executive of the Temasek Holdings-backed group explains the shift announced on Wednesday as a continuation of changes begun years ago.
“Our internal project name for this is Project Darwin, which signifies that this is an evolution,” Keppel CEO Loh Chin Hua said in remarks to media and analysts on Wednesday. He added that, “This is only possible because of the huge progress we have made as a Group, how we have come together as OneKeppel over the last few years.”
Loh pointed out that alternative assets, including real estate, data centres and infrastructure are now being targetted by pension funds, with Keppel, which is the parent company of property developer Keppel Land, Keppel Data Centres and telecom operator M1 having vital expertise managing real assets.
The plan received high marks from equity analysts and Keppel’s share price has now risen 4.7 percent since the transformation scheme was announced.
Vision 2030 Journey Continues
Having previously announced a goal of having S$200 billion ($151 billion) in assets under management by 2030, while attaining return on equity of 15 percent, Keppel has added an interim target of growing its AUM to S$100 billion by 2026 – double its current level.
In a research note, analysts from CGS-CIMB acknowledged those targets as feasible as the company shifts to collecting fund management fees from betting on its own real estate projects.
“It (Keppel) maintains its 15 percent ROE target by 2030F; we think it could achieve this by 2026F as Keppel plans to replace lumpy real estate development profits (FY21: S$177m) with income that are more recurring in nature,” CGS-CIMB said.
Loh pointed out that Keppel’s plan to become a global asset manager is a continuation of its Vision 2030 strategy laid out in 2019, under which the company vowed to refocus its business to be an integrated business providing end-to-end solutions for sustainable urbanisation.
“Asset management is not new to Keppel,” Loh said. “We have been doing this now for 20 years, and we have established about 17 funds over that period.”
The group’s Keppel Capital division owns private fund manager Alpha Investment Partners and controls the managers of SGX-listed Keppel REIT, Keppel DC REIT and Keppel Pacific Oak US REIT.
Speaking of the company’s private fund business, Loh said, “In the last three years, we have raised about S$9.5 billion in funds and deployed S$17.6 billion in investments,” while noting that it has averaged an IRR of 17 percent since entering the fund management business in 2002.
Citing Keppel’s knowledge of high growth sectors as a differentiating factor, Loh laid out a plan for the company to become a simplified organisation focused on finance.
We will have three platforms – a Fund Management Platform, an Investment Platform and an Operating Platform,” Loh said.
“Keppel’s reorganisation as it grows its AUM (assets under management) could also reap synergy within the group, optimising support functions” CGS-CIMB’s analyst said.
With the company having sold its offshore and marine division to its compatriots at Sembcorp Marine earlier this year in a S$4.5 billion deal, Loh says Keppel will continue to clear out its balance sheet to focus on managing assets on behalf of third parties.
“Overall, we think Keppel’s focus has pivoted from asset gathering to asset optimisation which is good for (its) balance sheet,” Peggy Mak, research manager at Phillip Securities, was quoted as saying in news reports.
“We have so far monetised about S$5 billion and we have now set an interim cumulative goal of S$10-S$12 billion by 2026,” Loh said of Keppel’s plans for further disposals.
The company expects the reorganisation, which will take place over the next 12 to 18 months, to generate S$60 million to S$70 million in annual cost savings by 2026.
Recurring Income on the Rise
Keppel saw its recurring income more than double from S$262 million in 2021 to S$503 million 2022, and is expected to grow that figure to S$670 million this year, according to CGS-CIMB.
“We have set very bold and ambitious goals, but I believe that it is very well within our means to execute,” Keppel’s Loh said during the briefing. “We have a lot of tailwinds helping us, and this gives us a lot of confidence. Keppel is in the right space and at the right time.”
In 2022 Keppel’s net profit tumbled 9 percent to S$927 million from S$1.02 billion a year earlier, due to lower earnings from its urban development business as well as provisions it had set aside for its now-divested, offshore and marine unit.