Monday, April 24, 2017

Keppel (BN4) and 2016 AGM

Draft: 4/21/2017, Price: S$6.56, Market cap: S$12b, PB: 1.08; Yield: 3%
Update: 4/25/2017, Source: 2016 AR


With my "First Reit" AGM experience and location of Suntec, I didn't have any issue to locate the meeting venue for Keppel's 2016 AGM. I got registered at counter and was passed a voting handheld device.
Many grey haired retirees were at the scene, most of them ethnic Chinese. It is quite surprised or pondering to me, since I didn't see other races, comparing with what I had seen at First Reit's AGM.

There ought to be 300+ shareholders at the site, a large ballroom was set up in Suntec for this purpose. It was said that this year's turn-up rate is already much lower than previous years' when shareholders turning in with long queue for getting their free buffet and their voucher; both 'goodies' were stopped this year. This change of practice was stated clearly in the 2016 letter to shareholders, nonetheless, the first two shareholders who grabbed the mic started whole sessions with still this topic, one of "Mr. Tan" who spoke with broken English, almost shouted his entire questions at Keppel Chairman Mr. Lee Boon Yang. Questions were asked by many shareholders, some of them well thought, some are simply being deployed to release shareholder's angers or grieves for the loss they might been suffered on the dropping share price. Quite interestingly, a few younger shareholders, in their 30~40s, came up with some relevant questions. Board members decided to take a 10% directorship fee cut, 8 non-executive directors took home S$2m fees this year. Other than "Mr. Tan" who created some 'spice' for an otherwise very dull/routine AGM, there is not much to write about. 

Now, let me take a look at mgmt and board directors' scorecard in 2016.

Keppel is a conglomerate, consists of 4 major business lines:
  • Offshore & Marine
  • Property (Keppel Land)
  • Infrastructure
  • Investment
or its strategy of "Multiple Earnings Streams" on "Urbanization".

It is ironic the cover of AR shows:
when its EVA decreased in a year by S$140m(Pg2) in 2016. A 3-year view shows revenue is steadily coming down..

This, coupled with mgmt's remarks on prolonged headwind faced by O&M sector, shows it still has a long way for Keppel to regain its glory.

From sector info in AR, here is the table of  each segment's business performance

There are also updates on Q1/2017 from the mgmt:
  • O&M order book S$3.5b (exclude Sete), it was 3.7b for year end of 2016
  • Property revenue stay stable, but profit boosted by divestment of two properties in Wuxi and Chengdu/China
  • Infrastructure, profit boosted by divestment of GE Keppel Energy Services.
  • Investment, profit boosted by sales of three pieces of land in Tianjin Eco-city project, and


Keppel's value can be summarized as aggregation of each segment's business value (one of the valuation methods).
  • O&M has an order book that lasts ~3 years, with 3b+ each year, with a barely break-even outcome at current Oil price level, what is the value of this segment, everyone's guess on Oil sector's future, difficult to value.
  • Property, constant residence flat sales, 2b revenue, with 11% growth(if last 3-y history record holds), if we use 13PE or 16EBITDA(from that of Capitaland), I value it at S$xxx.
  • Infrastructure business is stable, since it is more likely to get support from goverment, for power, gas, desalination plant works, I value it at S$xxx.
  • Investment, Keppel internal asset's unlocking vehicle, up to mgmt's plan & financial team's skill to show/release/hold profit, difficult to value.

Keppel is, in Chinese, a "昔日的贵族", strategy is "卖家产" to tide over.
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In addition, I feel 10% directorship fee cut, after reading the AR, is aligned with O&M segment, the HC has been reduced from 30k to 22k, and per HC cost reduction is just ~10%, so the directors are with the same percentage of cut.

However, one is directorship fee, the other is employee's lifeboat, can they be the same?

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Current yield, not attractive to me, with little light on O&M segment, the biggest contributor of Keppel in hisotry, thus My current plan: wait and part down my position where opportunities arise.

I originally intent to write more, but...


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