Keppel's Q1 profit falls 21% on absence of divestment gain

Singapore

KEPPEL Corp posted a 20.9 per cent drop in quarterly net profit to S$160.5 million from a year earlier, mainly due to the absence of gain from the partial divestment of a Vietnam township project that had boosted profit previously.

Revenue for the first quarter ended March 31 rose 21.3 per cent to S$1.86 billion, led by higher revenues from offshore & marine projects, property trading projects in Singapore, the power and gas business, and with the M1 consolidation.

While it is not directly exposed to sectors hardest hit by the Covid-19 pandemic such as retail and hospitality, Keppel said it has inevitably been affected by the fall in global economic activity, widespread lockdowns, oil price crash and workforce and supply chain disruptions.

"The impact is very hard to escape but many of our businesses in Singapore are still active (during the Circuit Breaker) as they are essential services...be it supply of power and gas and even connectivity such as M1 and our data centres," said Keppel chief executive Loh Chin Hua at a virtual results briefing with media and analysts.

He added: "All our key business units remain profitable and Keppel continues to have a strong balance sheet and the necessary credit lines to finance our operations. Nevertheless, given the tightening liquidity environment, we are watching our cashflow and gearing carefully".

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Keppel's offshore & marine business saw net profit halved to S$3 million due to the share of losses from associated companies. Operating profit jumped to S$28 million from S$3 million a year ago.

"The current situation with the oil price has obviously created some challenges for the offshore sector. Fortunately for Keppel, our net order book of S$4 billion (as at end-March 2020) is quite decent and will keep us busy for the next two years," said Mr Loh. Notably, renewables and gas-related solutions make up 70 per cent of the net order book, in line with its pivot away from oil in recent years.

Keppel's six yards in Singapore remain operational as they provide essential services but manpower there has reduced significantly due to precautionary measures from some 22,000-23,000 workers as at end-March (not all are direct employees) to just over 1,000 currently. The group's yards overseas are also operational except for in the Philippines due to the lockdown.

On the back of workforce and supply disruptions, Mr Loh said "where necessary", the company has served force majeure notices for some affected projects, adding however that this was "generally, not a big issue" as customers understood the situation. Some projects in the infrastructure and data centre divisions may also be delayed. The property segment posted a net profit of S$35 million, down 73 per cent from a year ago due mainly to the absence of gain from the disposal of a partial interest in Vietnam's Dong Nai Waterfront City and a tax writeback a year back.

Keppel Land sold 450 homes over the quarter - about 15 per cent higher than a year before, with China contributing over 70 per cent of sales volume, of which more than 200 homes were sold in February and March, reflecting improving sentiments in China, said Mr Loh.

Last Saturday, Keppel Land launched a residential project in Wuxi, which drew bookings of 65 per cent of the 251 units launched. "More importantly, the pricing is about the same as what it was last year. I will not say that things are back to normal...but these are little encouraging signs from the Chinese market," he added.

The infrastructure division posted a net profit of S$174 million, up sharply from S$16 million a year ago, led by a mark-to-market gain of S$131 milion from the reclassification of the group's interest in Keppel Infrastructure Trust from an associated company to an investment.

The investments segment recorded a net loss of S$52 million compared to net profit of S$49 million mainly due to the absence of re-measurement gains from previously held interests in M1, as well as mark-to-market losses on some investments.

Earnings per share for the quarter came in lower at 8.8 Singapore cents from 11.2 cents previously. No dividend was recommended for the period, the same as the previous corresponding period. Keppel shares fell six cents to S$5.97 on Wednesday before the results were announced.