Keppel - CGS-CIMB Research 2024-02-01: Infrastructure Powering Recurring Income

• Keppel (SGX:BN4)’s recurring income grew 54% y-o-y to S$773m in FY23. Infrastructure was the largest recurring earnings driver (+90% y-o-y). We attribute the infra strength to its agile contracting strategy at higher spread, optimisation of fuel source and plant efficiency, and retail gas sale.

S$12bn valuation for recurring income, based on 15x FY24F P/E

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• Based on 15x FY24F P/E, we can value Keppel’s recurring income at S$12bn, suggesting that the current Keppel's share price may not have priced in its real estate and connectivity business.
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Integrated power business drove infrastructure profits

• Infrastructure profits grew 40% h-o-h to S$408m in 2H23, driven by the S$352m (+16% h-o-h) operating income from its integrated power business, on the back of higher spreads contracted with customers, optimisation of LNG/PNG fuel source and plant efficiency, as well as some retail gas sale, in our view.
• As at end-2023, 19% of infra’s generating power capacity comprised contracts of more than 10 years (vs. 1% as at Jun 23), contributed mainly by the contract to provide 150-180MW of power p.a. to GlobalFoundaries, starting May 24. Its 3-10-year contracts also grew h-o-h to 40% of generating capacity (from 35%).

Infrastructure profits likely to sustain in FY24-25F

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LIM Siew Khee CGS-CIMB Research | Kenneth TAN CGS-CIMB Research | https://www.cgs-cimb.com 2024-02-01 SGinvestors.io

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