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...

My 'First' AGM experience

Date: 4/18/2017
Updated: 4/19/2017 (on REIT DPU composition)

There are two counters I'm holding have planned AGM today: CCT@10am and First Reit@9.30am, well, since it is my 'First' AGM, First REIT, by its very name, sounds better to me.

I hold First REIT only for less than a year, one of the reasons I like First REIT is its quarterly dividends.

Not being in SG for a decade, I was a bit disoriented when I walked out of Somerset MRT station and was lost in 313@Orchard shopping mall, the security lady pointed me the wrong way, I had to walk out of the mall to Orchard road under the hot sun to figure out my direction to the right venue.
Never attended any AGM  in China before, I'm totally new to the SG AGM and its procedure.

Registration is pretty easy, there are few clerks helping at the counter with IC presented to verify my number of units, the outgoing chairman Albert Saychuan Cheok shook hands with the earlier birds, including me:)

There are few interesting(and few very basic or strange) questions fired by unitholders during the Q&A session, Dr. Ronnie Tan Keh Poo(CEO & Deputy chairman) hold the mic answering majority of those, which I think it will be better if he let his fellow board directors the chances to answer some of the financial questions which he is not so acquainted with.

A show-up of 100+ shareholders, flocking to the adjacent ballroom for refreshment when Dr. Tan adjourned the meeting for counting of the votes on resolutions.

A few takeaways:

• A "Greenfield" private hospital needs 3-4 years to reach Op CF positive
• A hospital makes money when occupancy rate stays above 60%
• First REIT issued a perceptual notes(MAS classified as security) of 5.625% interest, renewable every 5-year
• Total debt S$400+m, gearing at 31+%(still some room to 45% MAS regulation)
• First REIT's current average interest on bond is slightly below 4%
• Growth strategy: acquire 1-2 hospital per annum from Sponsor (LK group)

One thing I don't really get from Dr. Tan's presentation (dare not to ask) is:
Is "-Capital" in DPU a return of unitholder's own investment? if so, it casts a concern to me, while I'd much prefer a 6.6% yield, I definitely wouldn't like it to be achieved in this manner.

Updates:
Read more DPU articles after STE highlight some of his comment, First REIT's dividend history, but no idea of % of 'capital' return from it.

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DPU:
REIT's distribution comprises the following types:
i) Taxable income
ii) Tax-exempt income
iii) Capital distribution
iv) Other gains distribution

The Trustee and Manager will deduct income tax at the prevailing corporate tax rate (currently at 17%) from the distributions made to Unitholders that are made out of the taxable income of REIT. This applies unless, the beneficial owners are individuals or qualifying Unitholders. In such instances, the Trustee and Manager will make the distributions to such Unitholders without deducting any income tax.A qualifying Unitholder refers to:

1. A company incorporated and tax resident in Singapore;
2. A non-corporate Singapore constituted or registered entity (eg. registered charities, town councils, statutory boards, registered co-operative societies and registered trade unions);
3. A Singapore branch of a company incorporated outside Singapore;
4. An international organisation that is exempt from tax on such distributions by reason of an order made under the International Organisations (Immunities and Privileges) Act (Cap. 145).
5. An agent bank or a Supplementary Retirement Scheme ("SRS") operator who act as nominee for individuals who have purchased Units in the Trust under the Central Provident Fund Investment Scheme or the SRS respectively; or
6. A nominee who can demonstrate that the Units are held for beneficial owners who are individuals or who fall within the classes of Unitholders listed in (a) to (d) above.

Distributions made to foreign non-individual Unitholders will be subject to a final withholding tax rate of 10% (until 31 March 2020 unless otherwise stated).

The above tax ruling does not apply to gains from the sale of real properties. Such gains, if they are considered as trading gains, are assessable to tax on the Trust. Where the gains are capital gains, the Trust will not be assessed to tax and may distribute the capital gains to Unitholders without having to deduct tax at source.

Any distributions made by the Trust to Unitholders out of tax-exempt income and taxed income would be exempt from Singapore income tax in the hands of all Unitholders, regardless of their corporate or residence status.

Capital distribution is regarded as "return of capital" in the hands of the Unitholders for Singapore tax purposes and is not subject to Singapore income tax.

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P.S.
CCT's hardcopy AR doesn't even print a section on "Notice of AGM", what a strange thing; I have to find its date/timing via web search.