Analysing large corporations is never an easy task, but the method we like to use is to break down the organisation into component parts in order to look at each carefully.
The same method can be used effectively for conglomerate companies as well. A “conglomerate” is defined as a large company with many disparate divisions that may or may not be totally unrelated to one another.
Let’s have a look at one of the more well-known blue-chip conglomerates in Singapore – Keppel Corporation Limited(SGX: BN4).
Investors can trace the roots of the company back to 1968 when Temasek Holdings, Singapore’s very own sovereign wealth fund, founded Keppel Shipyard back then. Since then, the group has moved on to expand its business into various divisions, and this conglomerate now boasts a market capitalisation of S$12.3 billion.
| Net Profit After Tax | ‘ in $ mil |
| Offshore & Marine | (109.3) |
| Property | 937.9 |
| Infrastructure | 169.6 |
| Investments | (54.4) |
| Total Net Profit After Tax | 943.8 |
Source: CapitalQ, 2018 Results
Keppel is made up of four distinct divisions. Let’s take a peek now into what each division does and how it contributes to Keppel’s group revenue.
They are Offshore & Marine, Property, Infrastructure and Investments.
Offshore & Marine (O & M Division)
Offshore and Marine (O&M) division is what Keppel is mostly known for. This division offers offshore rig design, construction and repair. It also carries out ship repairs and conversion and performs specialised shipbuilding.
Keppel O&M is considered a pioneer in the industry and has an established leading market position. The division designs and builds high-performance mobile offshore rigs, platforms and vessels.
The conversion and repairs sub-division performs repairs, conversion and upgrading of a wide range of vessels for the oil and gas industry, such as Floating Production Storage and Offloading Units (FPSO) and Floating LNG (FLNG) vessels. O&M division takes up 26.8% of group revenue for 9-months 2019 (9M 2019) but made up just 3.5% of total profit.
The Offshore & Marine division used to be the crown jewel of Keppel Corporation but recently fallen on hard times.
The segment saw a dramatic decline in the aftermath of the Oil & Gas crisis in 2016 which saw a dramatic decline in oil rig building contracts.
Keppel has recently made in-roads into the Gas Solutions. Global demand for gas continues to be led by Asia which accounts for 50% of the expected growth in demand for natural gas till 2022.
With its ability to provide end-to-end solutions across the gas value chain, Keppel is aiming to capture opportunities in the gas industry.
Property Division
Keppel’s property division is parked under Keppel Land, which develops quality homes, offices, commercial and integrated developments. The division has a pipeline of about 46,000 homes in Singapore and overseas and is committed to growing its commercial portfolio in cities such as Shanghai, Beijing, Tianjin, Ho Chi Minh, Jakarta, Manila and Yangon. Keppel Land is also scaling up its presence in both Indonesia and India.
It has been a bright spot generating the bulk of their revenues and operating profits before tax in recent years.
In 2018, Keppel sold 4,440 homes in Asia – mainly China, Vietnam and India. It has also replenished its residential handbook with the additional of about 3,600 units in China and 500 units in Indonesia.
Notably, only 40% of the asset distribution for its property division is in Singapore. The other 60% is spread out around Asia with China accounting for 40% and Vietnam 9%.
The property division made up just 18.8% of total group revenue for 9M 2019 but took up the lion’s share of net profit at 66% or two-thirds.
Infrastructure Division
The infrastructure division owns power and gas assets as well as logistics and data centre businesses. Keppel Infrastructure provides advanced technology solutions across a wide range of environmental issues such as solid waste, wastewater, biosolids and sludge.
The sub-division also develops, owns and operates power plants in Brazil, China, the Philippines and Nicaragua.
Keppel Telecommunications and Transportation (T&T) is the data centre sub-division under the infrastructure division. Its logistics arm offers customised integrated logistics solutions and operates logistics facilities in China, Malaysia, Indonesia, Vietnam and Australia.
The division also owns a global portfolio of more than 20 data centres located in data centre hubs in Europe and Asia-Pacific. Data is now the new oil, and this division should benefit from this tailwind.
Infrastructure makes up the largest share of revenue at 40.3% for 9M 2019 and contributes 28.1% of net profit.
Investments Division
Finally, the group has an investment arm known as Keppel Capital. This division boasts assets under management of S$29 billion as at end-2018 and owns a diversified portfolio comprising real estate, infrastructure and data centre assets in key markets.
This includes their investments into companies like M1 which was delisted earlier this year in 2019.
Keppel Capital also falls under this division and managers 3 Singapore REITs – Keppel REIT (SGX:K71U), Keppel-KBS US REIT (SGX: CMOU) and Keep DC REIT (SGX: AJBU). They also the manager of Keppel Infrastructure Trust (SGX: A7RU).
Investments make up Keppel’s smallest division, contributing 14.1% to group revenue and just 2.4% to net profit.
Recent 3Q 2019 and 9M 2019 Results
Keppel reported a steady set of earnings for 3Q 2019, with total revenue up 60% year-on-year to S$2.1 billion. The increase was broad-based and contributed by all divisions as well as increased sales in the power and gas business.
The good news is that the O&M division has turned the corner, reporting a net profit of S$18 million for 9M 2019 compared to a net loss of S$38 million during the same period last year.
The Property division’s net profit was understandably lumpy as it depends on when the group sells off its development properties. For 9M 2018, Keppel benefitted from the en-bloc sale of development projects and the divestment of a commercial development in Beijing.
The absence of this gain is what resulted in the decline in 9M 2019’s operating profit of 37% year-on-year. The Infrastructure division also performed well with a net profit of S$145 million for 9M 2019, up 20% year-on-year.
Risks remain but worst is over
Keppel still faces lingering risks as oil and gas prices and activity remain depressed after the oil price crash in 2014. However, the worst is probably over as the O&M division recorded a profit for 9M 2019, and investors can look forward to better days ahead as the division has secured new contracts worth about S$1.9 billion year-to-date.
Top Shareholder – Temasek Holdings
According to the Annual Report, largest shareholder at the end of the Financial Year 2018 was Temasek Holdings.
Investors should also take note that Temasek has also initiated a partial offer to acquire an additional 30.55% of Keppel Corp shares at $7.35.
This would boost their holdings to 51%. Temasek has indicated that it would keep Keppel Corporation listed on the Singapore Stock Exchange.
