Keppel Corp 3Q18 net profit drops 15 percent, missing analyst forecast

Singapore five-dollar note Photo by Leslie Shaffer

Keppel Corp. reported on Thursday that its net profit for the third quarter fell 14.9 percent on-year to S$225.67 million amid lower contributions from property trading.

That missed a forecast from CGS-CIMB, which had estimated Keppel’s net profit at around S$277 million for the quarter, pointing to the absence of one-off gains.

Revenue for the quarter ended 30 September was down 19.9 percent on-year at S$1.30 billion, Keppel said in a filing to SGX after the market close on Thursday.

“Higher revenue recognition from ongoing O&M projects and increased power and gas sales were offset by lower contributions from property trading, asset management, as well as the absence of the sale of investments,” Keppel said.

Offshore & marine

Revenue from the offshore & marine division rose by S$36 million on-year, or around 9 percent, to S$416 million for the quarter, mainly on higher revenue recognition from ongoing projects, it said.

The O&M division’s pre-tax profit was S$10 million for the quarter, swinging from a year-earlier pre-tax loss of S$400,000, it said, adding it was mainly on higher operating results and net interest income in the third quarter of 2018, compared with a net interest expense in the year-ago period. Its net profit was S$2 million for the quarter, after three quarters of losses, Keppel said.

For the nine-month period, the O&M division posted a net loss of S$38 million, but an operating profit of S$20 million, it said.

Keppel said the O&M had year-to-date new contracts of around S$1.4 billion, with recent gas-related contracts of two LNG carriers and ann FSRU conversion.

Property division

Property division revenue fell by S$366 million, or around 67 percent, to S$180 million for the quarter, mainly on lower revenue from Singapore, China and Vietnam property trading, it said.

Pre-tax profit for the property division rose by S$8 million, or around 4 percent, to S$233 million, mainly on a gain from the divestment of the Aether Ltd. stake, partly offset by a lower contribution from China and Vietnam property trading, Keppel said.

Net profit for the property division fell around 6 percent on-year in the quarter to around S$161 million, it said.

In the year-ago quarter, the property division also had gains from divesting the Wiseland Investment (Myanmar) stake and the en-bloc sale the Keppel Lakefront (Nantong) Property Development project, it said.

Infrastructure

In the infrastructure division, revenue rose by S$48 million, or around 8 percent, to S$674 million on increased sales in the power and gas businesses, partly offset by lower progressive revenue recognition from the Keppel Marina East Desalination Plant project, Keppel said.

The pre-tax profit of the infrastructure division rose by S$14 million, or around 30 percent, to S$60 million, mainly on a gain from selling a stake in Keppel DC REIT and higher contributions from infrastructure services, where were partly offset by lower contributions from energy infrastructure and environmental infrastructure and a lower share of profit from Keppel Infrastructure Trust, it said.

Net profit for the infrastructure division was around S$55 million for the quarter, up around 38 percent on-year, it said.

Investments division

In the investments division, revenue fell by S$40 million, or around 62 percent, to S$25 million, primarily on the absence of the sale of investments and lower revenue from the asset management business, it said.

Pre-tax profit for the investments division fell by S$40 million, or around 67 percent, to S$20 million, mainly on a year-earlier profit from the sale of investments and the year-earlier contribution from k1 Ventures, it said, adding that was partly offset by a share of profit from Sino-Singapore Tianjin Eco-City.

The investments division’s net profit for the third quarter was around S$8 million, down around 85 percent on-year, it said.

Nine-month results

For the nine-month period, overall net profit was up 17.6 percent on-year at S$809.29 million, while revenue fell 3.0 percent on-year to S$4.29 billion, Keppel said.

“This was underpinned by stronger contributions from the property and infrastructure divisions, which more than offset losses incurred by the offshore & marine (O&M) and Investments divisions,” Keppel said of the nine-month results.

Outlook

In the outlook, Keppel Corp. CEO Loh Chin Hua pointed to the company’s strategic initiatives.

“Keppel continued to deliver strong results in the first nine months of 2018, during which we announced our expansion into new markets
and asset classes such as senior living, early education and Australian retail real estate,” Loh said in the statement.

“More recently, we announced our pre-conditional voluntary general offer, together with SPH, to gain majority control of M1 to drive business transformation and enable it to compete more effectively. We have also announced a scheme of arrangement to privatize Keppel Telecommunications & Transportation,” he noted.

In the O&M division, Keppel is actively pursuing opportunities in production assets, specialized vessels,, gas solutions, floating infrastructure and offshore renewables, it said, adding it also looking into ways to re-purpose technology for the offshore industry.

Loh said Keppel was seeing more inquiries for scrubber retrofits, which was expected to increase as the IMO’s 2020 deadline for implementing the 0.5 percent sulfur cap on marine fuels nears. He said Keppel Shipyard had completed Singapore’s first VLCC scrubber retrofit in the third quarter and there were more projects in the pipeline.

In the property division, Loh said Keppel expected to recognize profit from the sale of around 7,240 units of overseas homes valued at around S$2.4 billion, recognized upon completion, from the fourth quarter of this year through 2022.

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