Keppel Corporation’s Growth and Challenges in FY ’24

Keppel Corporation Limited ((KPELY)) has held its Q4 earnings call. Read on for the main highlights of the call.

Keppel Corporation’s recent earnings call showcased a robust financial performance, underscored by significant growth across various segments, notably Connectivity and Infrastructure. The company has successfully achieved substantial asset monetization and has seen an improvement in return on equity (ROE). Despite these positive strides, challenges persist, particularly with legacy Offshore and Marine (O&M) assets that continue to incur losses, alongside reduced earnings in the Real Estate segment. Nonetheless, the positive highlights notably surpass the negatives, indicating a healthy financial trajectory for Keppel.

Strong Financial Performance

Keppel’s financial results for FY ’24 revealed a net profit from continuing operations of $1.06 billion, marking a 5% increase from the previous year. The Connectivity segment demonstrated remarkable earnings growth of 45% year-on-year. Additionally, asset management fees surged by 54% to $436 million, while the funds under management significantly increased from $55 billion to $88 billion.

Significant Asset Monetization

The company announced nearly $7 billion in assets monetized since October 2020, with approximately $1.5 billion achieved in 2024. When including the divestment of Keppel O&M, the total asset monetization amounts to an impressive $11.7 billion.

Improved Return on Equity

Keppel improved its ROE from continuing operations to 10.1% in FY ’24, up from 7.9% in FY ’22, reflecting the company’s strategic focus on enhancing shareholder value.

Infrastructure Segment Growth

The Infrastructure segment saw earnings soar 4.9 times from $137 million in FY ’21 to $673 million in FY ’24, driven by solid recurring income streams.

Data Center and Connectivity Expansion

The Connectivity earnings grew 2.5 times from $74 million in FY ’18 to $184 million in FY ’24. Additionally, the data center portfolio’s power capacity expanded 2.7 times, from 240 MW in 2018 to 650 MW in 2024, marking significant progress in this strategic area.

Legacy O&M Assets Loss

Challenges remain with legacy O&M assets and discontinued operations, which recorded a net loss of $124 million in FY ’24, highlighting an area of concern for the company.

Real Estate Segment Challenges

Keppel faced headwinds in its Real Estate segment, with earnings from development and EPC activities declining primarily due to lower profits from property trading projects in China and Singapore.

Lower Fair Value Gains in Infrastructure

The Infrastructure segment experienced lower fair value gains from sponsor stakes in private funds compared to the previous year, impacting overall profitability.

Lower Divestment Gains

The company saw a decline in divestment gains year-on-year due to fewer assets being monetized in FY ’24, as market conditions were less favorable.

Forward-Looking Guidance

For fiscal year 2024, Keppel reported a net profit of $1.06 billion from continuing operations, a 5% increase from the previous year, excluding legacy O&M impacts. The company observed a substantial free cash inflow of $901 million, a significant recovery from the previous year’s outflow. Keppel aims to continue its asset monetization efforts, targeting $10 to $12 billion by 2026, while also focusing on derisking legacy O&M assets valued at approximately $3.6 billion. The restructuring efforts have already realized cost savings and are expected to yield further optimizations by 2026.

In summary, Keppel Corporation’s earnings call highlights a resilient financial performance with strong growth in key segments, despite some challenges with legacy assets and real estate. The company’s strategic initiatives, particularly in asset monetization and infrastructure expansion, position it well for future success, aligning with its asset-light strategy and focus on shareholder returns.