Keppel - DBS Research 2025-02-06: Riding The AI Wave

• Keppel (SGX:BN4)’s FY24 core profit, excluding legacy O&M (-S$232mil) and discontinued operations (+S$108mil), grew 5% y-o-y to S$1,064mil. This was partly aided by higher revaluation gains, which offset the weaker real estate development business.

Keppel's FY24 core profit slightly ahead.

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• Profit in the connectivity segment surged 45%, reaching S$184mil, driven by higher fair value gains from listed REIT and data centre assets, and dilution gains on Keppel DC REIT (SGX:AJBU) (accumulatively +S$47mil).
• The real estate segment was weaker than expected, with net profit falling 3% y-o-y to S$306mil, dragged by the development business, which is unsurprising given the company’s strategy to move away from EPC projects and the weak property sentiment in China.
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Promising outlook ahead; subsea cable under the spotlight.

• The infrastructure segment is expected to continue delivering steady earnings, with ~70% of its total generation capacity contracted for at least three years. The Sakra plant – the first hydrogen-ready power plant in Singapore – is on track to commence operations in 1H26, propelling growth for the company from 2026. Decarbonisation & sustainability solutions orderbook grew to S$6bn (vs. S$4.3bn as of end-2023), providing good recurring earnings for the next 10-15 years.
• The connectivity segment came under the limelight with the announcement of DeepSeek, sparking uncertainty over data centre demand and progress of the Bifrost subsea cable. Management stated DeepSeek should be deemed an exciting development for the AI industry, with the benefits of pushing down cost, improving efficiency, driving innovation, and accelerating adoption, and should continue to support growth in demand for data centres.
• In end-Jan, Keppel’s Singapore-US Bifrost subsea cable system (spanning over 20,000km) received US regulatory approval. These five pairs of fibre cables (Keppel’s share is 40%; other co-investors 60%) are expected to achieve a higher internal rate of return (IRR) of >30% due to lower cost and scarcity premium. The potential gains on Keppel’s share of the cost (at US$350mil) could be ~S$18-25mil/pair, assuming 20%-25% returns (of which two pairs, are expected to be recognised in 2H25, upon completion).
• Meanwhile, we observe opportunities for two more cable systems with over 30 pairs of fibre cables connecting SEA to the rest of Asia and beyond. These should require lower investment given the shorter distance and be completed faster, probably within two to three years.

Keppel’s FUM stood at S$88bn (67% real estate, 22% infrastructure, 11% connectivity).

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Pei Hwa HO DBS Group Research | https://www.dbs.com/insightsdirect/ 2025-02-06 SGinvestors.io

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