CGS International
August 1, 2025

Keppel Ltd Sets Sights on Value Creation: S\$500m Share Buyback, Major Divestments, and Infrastructure Growth Drive 2025 Outlook

Introduction: Keppel Ltd’s Strategic Transformation Accelerates

Keppel Ltd is accelerating its transformation with a bold mix of asset monetisation, strategic divestments, and a robust focus on infrastructure, asset management, and connectivity. The company reported its 1H25 results, highlighting a S\$500 million share buyback, a massive carve-out of S\$14.4 billion in non-core assets for divestment, and clear signals that infrastructure will drive the “new Keppel” in the coming years. CGS International reiterates an “Add” recommendation, raising the target price to S\$10.23 (previously S\$9.28), reflecting a 20.8% upside from the current S\$8.47.

Share Buyback and Asset Divestment: Key Highlights from 1H25

• S\$500m Share Buyback: The programme, worth approximately S\$0.28 per share, will fund employee share plans and the second phase payment of Aermont in 2028. The buyback is scheduled to run through April 2026.
• Non-Core Portfolio for Divestment: Keppel has earmarked S\$14.4 billion in assets for divestment by 2030, including S\$8.8 billion in property-related assets, S\$4.8 billion in legacy offshore and marine assets, S\$0.8 billion in investments and others, and S\$2.9 billion in cash and receivables.
• Divestment Progress: Year-to-date, Keppel has monetised S\$915 million in assets, pushing its cumulative asset monetisation since October 2020 to S\$7.8 billion. The goal is S\$10-12 billion by 2026.

Financial Performance Review: 1H25 Results and Outlook

• Net Profit: 1H25 net profit was S\$378 million, up 24% year-on-year but down 45% half-on-half. This represents 44% of CGS International’s FY25 forecast and 39% of Bloomberg consensus.
• Revenue: 1H25 revenue reached S\$3,056.6 million, a 5.2% decrease year-on-year, attributed largely to lower real estate contributions.
• Operating EBITDA: Rose 19.4% year-on-year to S\$723.7 million, with a margin improvement to 23.7% from 18.8% a year ago.
• Dividend: Interim cash dividend per share (DPS) of S\$0.15 declared, with FY25 forecast held at S\$0.35 barring a sizeable M1 divestment.

Key Financial Summary (Selected Years)

Asset Monetisation: Year-by-Year Progress and Targets

Keppel’s asset monetisation since 2020 has been broad-based and impactful. Major deals include:

• 2020: Keppel Bay Tower (S\$601m), Chengdu Hilltop (S\$250m)
• 2021: M1 network assets (S\$580m), Nanjing Jingsheng (S\$362m)
• 2022: Marina East Desalination Plant (S\$355m), Sheshan Riviera (S\$196m)
• 2023: Keppel REIT dividend-in-specie (S\$294m), Podium West Tower (S\$195m)
• 2024: SGP 7 and SGP 8 data centres, Keppel Philippines Holdings stake, Saigon Centre and Palm City stakes

The cumulative value unlocked to date in 2025 stands at S\$915 million, bringing the total closer to the 2026 target of S\$10-12 billion.

Divestment of M1: Scenarios and Implications

Keppel is considering divesting M1 or just its consumer business, responding to the competitive landscape and declining profitability in mobile services. Scenario analyses indicate:

• Full M1 Divestment: Valuation ranges from S\$1,040m to S\$1,420m (6x-8x 2025F EV/EBITDA), with net cash proceeds per share for Keppel from S\$0.48 to S\$0.65. This would allow a special dividend of S\$0.10–S\$0.13 per share, though EPS would reduce by ~10% in FY26F.
• M1 Consumer Business Only: Valuation ranges from S\$790m to S\$1,070m, with Keppel’s proceeds per share between S\$0.37 and S\$0.49 and a special dividend of S\$0.07–S\$0.10. EPS reduction estimated at 6%.

Infrastructure and Connectivity: The New Growth Engines

Keppel’s infrastructure division, asset management, and connectivity (notably data centres and the Bifrost subsea cable) are set to be the main growth drivers for the next 2–3 years. The 600MW Sakra cogen plant is expected to come online earlier than the previously guided 1H26F, with full contracts secured for more than three years.

Segmental Valuation and Sum-of-the-Parts (SOP) Analysis

A revised SOP analysis underpins the target price of S\$10.23. Key components include:

• Infrastructure (ex-KIT): Valued at 12x FY26F P/E, worth S\$7,349m (S\$4.02/share).
• Keppel Land Investment Properties: S\$4,479m at a 40% discount for China exposure.
• Development Properties: S\$2,229m at a 30% discount (China & non-China).
• Listed REITs and Trusts: Keppel REIT (S\$1,512m), Keppel DC REIT (S\$854m), Keppel Infrastructure Trust (KIT) (S\$476m).
• Connectivity: S\$2,350m (S\$1.28/share) at 10x FY26F P/E.
• Fund Management: S\$2,834m (S\$1.55/share) at 15x FY26F P/E.
• Rig Co & Floatel: S\$4,395m (S\$2.40/share).
• Private Funds: S\$1,532m (S\$0.84/share).
• Net Debt: S\$9,719m deducted (S\$5.31/share).
• Total SOP Value: S\$18,713m (S\$10.23/share).

Financial and Operational Metrics: By the Numbers

Peer Comparison: How Keppel Stacks Up

Keppel is benchmarked against a range of sector and regional peers, including Capitaland Investment, Seatrium, Yangzijiang Shipbuilding, Sembcorp Industries, and others. Key observations include:

• Keppel’s FY25F P/E: 17.9x, with ROE at 7.5% and dividend yield at 4.1%.
• Integrated Global Asset Management Peers Average: 17.5x P/E, 6.7% ROE, 4.2% yield.
• Singapore Shipbuilder Average: 19.5x P/E, 4.6% ROE, 0.9% yield.
• Chinese Shipbuilder Average: 22.9x P/E, 14.2% ROE, 3.3% yield.
• Korean Shipbuilder Average: 35.6x P/E, 12.8% ROE, 0.3% yield.
• Industrial/Conglomerate/Airport Services Average: 19.6x P/E, 15.9% ROE, 2.9% yield.

ESG: Sustainability and Governance at the Forefront

Keppel Corporation has maintained an AAA MSCI ESG rating since 2020 and is among the top 8% of global industrial conglomerates. The company’s LSEG ESG score improved to B- in 2024, reflecting ongoing efforts under its Vision 2030 strategy. Key ESG pillars include:

• Energy & Environment: Targeting a halving of Scope 1 & 2 emissions and a 7GW renewable energy portfolio by 2030. Already announced 1.1GW of renewable projects since 2020, including a 500MW solar farm in Australia.
• Urban Development, Connectivity, and Asset Management: Sustainability is integrated into all business lines, with asset recycling and non-core divestments reducing the carbon footprint.
• Corporate Governance: Keppel has improved its ESG controversies score from D+ in 2016 to C in 2024, following strong anti-bribery measures and the divestment of its offshore & marine business.
• Recognition: Winner of the Singapore Corporate Governance Award 2022 (Big Cap), member of the Dow Jones Sustainability Indices, and listed as one of the World’s Best Employers 2022 by Forbes.

Shareholder Structure and Analyst Coverage

• Major Shareholders: Temasek Holdings (20.6%), BlackRock (5.2%), Vanguard Group (3.0%).
• Consensus Ratings (as of report date): Buy 10, Hold 2, Sell 1.
• Average Daily Turnover: S\$33.33 million.
• Shares Outstanding: 1,822 million, Free float 78.8%.

Conclusion: Re-Rating Catalysts and Risks Ahead

Keppel Ltd is well-positioned for an upward re-rating, driven by:

• S\$500 million share buyback programme
• Potential special dividend
• Divestment of M1 (full or partial)
• Further asset monetisation and reduction of legacy rig stakes

Risks to watch include slower-than-expected monetisation of non-core assets and external market headwinds. However, with a clear focus on infrastructure, sustainability, and capital recycling, Keppel’s medium-term growth outlook remains compelling for investors seeking exposure to a dynamic Singapore conglomerate at the forefront of transformation.