In 2023, Keppel Ltd reshaped its entire business, improving its dividends.
I last wrote about Keppel’s business model here.
It spun off its chunky, offshore marine assets, and now focuses on a Brookfield Asset Management model – going “asset-light”. Unlike its traditional capital-intensive project-based businesses.
It now earns recurring fee income from assets. Last year, Keppel’s S$766 million recurring income accounted for 72% of net profits.
It’s also been divesting non-core assets, raising cash to reduce debt and support dividend payouts.
Markets seem to like Keppel’s new operating model – Shares were up 60% since it hit rock-bottom in 2020.
Keppel’s a pretty big conglomerate.
So, let’s try to break it down here.
Why Keppel shares soared – what’s driving recent growth?
All three of Keppel’s segments – Infrastructure, Real Estate and Connectivity – have done quite well.
Infrastructure is still the biggest contributor of net profits (see graph below), which manages all the energy assets and collects a fee. This includes Keppel Infrastructure Trust and Keppel DC REIT.
I say the company is turning around. Looking into its 2H2024 results: Half-year revenues and net profits have climbed 4% y/y and 20% y/y respectively. This isn’t too bad actually.
And it’s driving steady dividend payouts so far.
So… where’s the next driver of dividend growth?
Asset monetization will be a key driver of dividend growth.
The more assets Keppel divest and later on manage, the more recurring income it collects from management fees.
You’ll know Keppel has high potential in its asset divestments. As end 2024, it has ~S$12 billion of assets that can be converted into future funds under management — selling assets and in return collect fee income to manage these assets.
And fund management is a big driver of its business. Its funds under management grew 60% y/y to $88 billion in 2024. Asset management fees grew 54% y/y to $436 million.
Only problem: real estate cycles. Asset monetization is partly macro driven.
Over the last couple of years, APAC real estate has slowed. Prove me wrong, this makes it tough for Keppel to monetize.
Year to date, Keppel has sold off S$730 million in assets. Its cumulative asset monetization since October 2020 reached S$6.1 billion – not too bad.
But it still falls short of its target to monetize S$10-12 billion by 2026. The asset monetization landscape can be challenging.
That’s why, its dividend payout ratio has gone up to keep pace with dividend growth. Last year, payout ratio hit ~65%.
However, if we see a recovery in the real estate transaction market. If Keppel can pull off hitting its target, I expect dividend yield to continue climbing from here.
Any divestment should support earnings, which ultimately reward shareholders with more dividends, or share buybacks.
Before 2020, Keppel’s dividends were unpredictable. Today, it paid dividends last year, and a special one-off dividend in 2023.
Steady dividends look secure today – very different from last time. And if Keppel can hit its asset sale targets, there’s a good chance of dividend growth.
Can Keppel go back to 10-year high of $10/share?
Well, it depends. My lottery bet is it must come from its data centre business.
Now, Keppel has been a solid data centre operator and developer over the last 20 years. And Keppel is aggressively growing this pie.
So far, its data centre portfolio’s gross power capacity grew from 240 MW in 2018 to 650 MW in 2024, with plans to grow to 1.2 GW in a couple of years. This is a big deal for investors.
What’s more, it also said: “With the Bifrost Cable System slated for completion in 2H25, Keppel is exploring the development of two more subsea cable systems with over 30 fibre pairs connecting Southeast Asia with the rest of Asia, and beyond.”
Long story short… And this is with a big IF, Keppel can execute its data centre growth, this lottery bet could see shares bouncing back to its 10-year peak in 2014.
My final thoughts
I’ve never liked how oil prices kept Keppel hostage. Its earnings were cyclical, and dividends inconsistent. However, today it’s different.
Keppel has transformed itself into what CapitaLand Investment, Brookfield Asset Management, and slowly with Link REIT – into an asset-light giant with recurring income.
With its new operating model, dividends at 5% yield look more stable. Ultimately, what would drive dividend growth will be its asset divestment strategy. So far, it’s been a challenging period to divest assets. But if it can pull off hitting its target, this should be a tailwind to reward shareholders with more dividends.
Sometimes, investing can be simple.
Willie Keng, CFA
Founder, Dividend Titan
Keppel still got many assets 2 divest . Encik Loh ‘s target of S$200B FUM by 2030 ! I waiting those legacy jack up rigs be monetised soon !
Hey Vincent!
Yes, if Keppel can divest its assets this should be a good addition to dividends 🙂
Cheers,
Willie