Broker: UOB Kay Hian
Date of Report: 01 August 2025

Keppel Ltd (KEP SP): Strong Growth, Robust Dividends, and Asset-Light Transformation Powering 2025 Outlook

Overview: Keppel’s Strategic Transformation Drives Earnings Growth

Keppel Ltd, a leading asset manager and operator with core businesses spanning energy & environment, urban development, connectivity, and asset management, continues its impressive transformation into a hybrid asset-light powerhouse. The company’s results for the first half of 2025 reflect steady profit growth, active capital recycling, and a commitment to rewarding shareholders—all while cementing its position alongside global asset management leaders.

Financial Highlights: Solid Performance with Recurring Earnings Strength

• Share Price: S\$8.47
• Target Price: S\$9.51 (12.3% upside)
• Market Capitalization: S\$15.4 billion
• 1H25 Net Profit: S\$431 million (+25% YoY)
• Interim Dividend: S\$0.15/share (unchanged YoY)
• Share Buyback Programme: S\$500 million

Keppel reported 1H25 net profit of S\$431 million, a robust 25% increase year-on-year, driven by strong performances in the infrastructure and real estate segments. Gross profit margin improved to 31.2% from 29.2% a year earlier, while net profit margin rose to 12.2% from 9.7%. The company’s annualised ROE reached 15.4%, up from 13.2% in 1H24.

Segment Performance and Earnings Quality

• Infrastructure: Remained the primary earnings driver, contributing S\$365 million to net profit.
• Real Estate: Contributed S\$98 million.
• Connectivity and Asset Management: Delivered stable but slightly lower contributions, offset by higher real estate gains.

Notably, nearly all net profit in 1H25 came from recurring income sources, excluding legacy offshore & marine assets. This shift underscores Keppel’s transformation and improved earnings stability.

Active Capital Recycling and Asset Monetisation

Keppel’s aggressive capital recycling strategy yielded S\$915 million in proceeds year-to-date, with an additional S\$500 million in transactions expected to finalize in 2H25. Since October 2020, total proceeds from non-core asset divestments have reached S\$7.8 billion, with S\$14.4 billion of assets still on the books. Keppel targets further asset monetization of S\$10-12 billion by end-2026.

2025 YTD Asset Sales

Shareholder Returns: Dividends and Buybacks

Keppel reaffirmed its focus on shareholder returns by declaring an interim dividend of S\$0.15 per share and launching a substantial S\$500 million share buyback programme. Repurchased shares will be held as treasury stock for employee share plans and potential M&A activities, with the management preferring this approach to avoid future dilution.

Clarity on Asset-Light Model and Global Positioning

Management continues to steer Keppel towards a hybrid platform model, integrating asset management with robust operational capabilities. This evolution aligns Keppel’s business more closely with global giants like Brookfield, KKR, and Blackstone. With S\$91 billion in funds under management (FUM), S\$4.7 billion raised year-to-date, S\$25 billion in “dry powder,” and a pipeline of S\$39 billion across infrastructure, digital infrastructure, and real estate, Keppel’s scale and recurring fee revenue potential are increasingly comparable to these global leaders.

• Fee Income Model: Targets a 50 basis point margin on S\$200 billion FUM, suggesting up to S\$1 billion in recurring fee revenue at scale.
• Comparison: CapitaLand Investment, for reference, has struggled to maintain a 45bp margin in recent years.

Business Segment Updates and Strategic Initiatives

Connectivity: Enterprise-Data Centre Synergies

M1’s strategic shift towards enterprise ICT now accounts for about half its revenues, cushioning the impact of competitive pressures in the consumer mobile market. There is growing synergy between M1’s enterprise ICT solutions and Keppel’s expanding data centre platforms, supporting a more resilient earnings profile. However, the potential sale of Keppel’s stake in M1 remains unresolved and continues to be a focal point for investors.

Energy & Environment: Execution and Regional Ambitions

• The 600MW Sakra Cogeneration Plant remains on track for commercial operations in 1H26, with construction progressing as scheduled.
• While spark spreads have moderated from 2022 peaks, management anticipates higher utilisation rates and cost efficiencies will sustain segment margins.
• Keppel secured conditional approval to import 300MW of electricity from Indonesia, aiming for a longer-term supply goal of 1GW under the ASEAN Power Grid framework.

Cost Management: Digitalisation and AI

Ongoing digitalisation and AI initiatives have delivered S\$88 million in recurring annual run-rate cost savings. The company is well on track to achieve its S\$120 million annual cost savings target by end-2026.

Earnings Revision and Valuation

• 2025-2027 earnings estimates have been trimmed by 1-6%, reflecting slightly lower infrastructure earnings in 2026 due to the impact of lower spark spreads from new Singaporean generation capacity.
• Keppel maintains a BUY rating, with a SOTP-based target price upgrade to S\$9.51 per share (from S\$9.25).
• At current levels, Keppel trades at a 2025F PE of 14.9x and P/B of 1.3x, with a forward dividend yield of 4.4%—metrics that remain attractive given the company’s stable earnings profile post-offshore marine divestment.

Share Price Catalysts to Watch

• Completion and delivery of the floating data centre park in 2025.
• Sale of legacy rigs now under Keppel’s control—potentially enabling earlier capital returns.
• Continued growth in AUM towards the S\$100 billion end-2026 target.
• Progress in monetising S\$10-12 billion in assets by end-2026.
• Positive developments from M&A transactions, particularly related to the Bifrost asset.

Key Financial Metrics and Forecasts

SOTP Valuation Breakdown

Conclusion: Keppel Well-Positioned for Continued Re-Rating

Keppel Ltd’s 1H25 results reinforce its ongoing transformation into a global asset-light platform, delivering robust recurring earnings and shareholder returns. With a clear path towards further asset monetisation, cost efficiency, and global platform expansion, Keppel remains attractively valued and well-positioned for future growth. Investors should watch for upcoming catalysts including major asset sales, further AUM growth, and strategic M&A activity as key drivers for share price upside.