Keppel(KPELY) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Keppel Corporation reported a net profit of S$927 million for FY 2022, a decrease of 9% from S$1.02 billion in FY 2021, primarily due to lower earnings in Urban Development and provisions for specific projects at Keppel O&M's yard in the US [16][17][41] - Return on Equity (ROE) was 8.1% for FY 2022, down from 9.1% in FY 2021 [18][41] - Free cash outflow was S$408 million in FY 2022, compared to an inflow of S$1.76 billion in FY 2021, mainly due to lower divestment proceeds [18][45] - Net gearing remained stable at 0.78x as of December 2022, compared to 0.79x in September 2022 [18][19] Business Line Data and Key Metrics Changes - The Asset Management segment delivered improved earnings of S$311 million in FY 2022, compared to S$301 million in FY 2021, making it the largest contributor to the Group's net profit [26][41] - Energy & Environment's net profit was S$241 million, more than doubling year-on-year, driven by higher contributions from electricity and gas sales [29][41] - Connectivity segment, led by M1, saw earnings grow 32% year-on-year to S$75 million, supported by its transformation into a cloud-native connectivity platform [34][41] - Urban Development's net profit declined to S$282 million, mainly due to reduced contributions from China property trading projects [58][41] Market Data and Key Metrics Changes - Keppel O&M achieved annual revenue of S$2.8 billion, its highest in six years, with a net order book of S$11.0 billion at the end of 2022, the highest level since 2007 [7][54] - The announced portfolio of renewable energy assets more than doubled to 2.6 GW, on track towards a target of 7.0 GW by 2030 [31][41] - M1's enterprise business grew steadily, making up about 33% of its revenue in 2022, up from 20% in 2020 [34][41] Company Strategy and Development Direction - Keppel Corporation is focusing on its Vision 2030 transformation, moving towards an asset-light model and growing recurring income [5][15] - The company plans to continue its asset monetization program, aiming to exceed S$5 billion by the end of 2023 [24][41] - The proposed combination of Keppel Offshore & Marine with Sembcorp Marine is expected to create a stronger global player in the energy transition [6][102] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging global economic environment in 2022, marked by geopolitical tensions and inflation [4][39] - The company remains optimistic about the recovery of the Chinese economy post-zero COVID policy, which is expected to boost domestic demand [33][49] - Management expressed confidence in achieving a targeted ROE of 15% by Vision 2030 through improved quality and absolute earnings [72][76] Other Important Information - The Board of Directors proposed a final cash dividend of 18.0 cents per share for FY 2022, maintaining a total cash dividend of S$0.33 per share, the same as in 2021 [20][41] - The company has made significant investments in energy and environment projects, including renewable energy and sustainable urban renewal-related investments [25][46] Q&A Session Summary Question: Can you elaborate on Keppel's NTA rising and falling after the Sembcorp Marine transaction? - Management clarified that upon completion of the transaction, NTA would initially rise due to significant gains, followed by a decrease after the distribution of shares to shareholders [67][70] Question: Why is the final dividend lower despite increased recurring income? - Management explained that the final dividend reflects a payout of 50% to 60% of earnings, and while recurring income has increased, net profit was lower than the previous year [72][74] Question: What was the impact of the fine on dividend distribution? - Management stated that the fines had no material impact on earnings or the decision regarding dividend distribution [78][79] Question: What are the earnings contributions from new energy and environment investments? - Management indicated that while investments were made, material returns are not expected in the short term, but they will contribute to recurring income over time [80][82] Question: What are the key drivers for electricity spreads in Singapore for 2023? - Management noted that electricity spreads were influenced by global energy prices and local maintenance activities, with a cautious outlook for 2023 [97][99] Question: What is the outlook for residential launches in China? - Management expressed optimism about the recovery in the Chinese property market and plans to launch projects based on market conditions [100][101]