Keppel Corporation (OTCPK:KPELF) Q2 2022 Results Conference Call July 28, 2022 5:30 AM ET
Company Participants
Loh Chin Hua – CEO
Chan Hon Chew – CFO
Christina Tan – CEO, Keppel Capital
Joo Ling Lim – CEO, Keppel Infrastructure
Leng Yeow Ong – CEO, Keppel Offshore & Marine
Lu-yi Lim – CEO, Keppel Land
Manjot Singh Mann – CEO, M1
Thieng Hwi Pang – CEO, Keppel Telecommunications & Transportation
Operator
Good evening, ladies and gentlemen. Welcome to the Conference for Keppel Corporation’s First Half Financial Results for 2022. We have on the panel this evening, from your left are, Mr. Manjot Singh Mann, CEO of M1; Miss Cindy Lim, CEO of Keppel Infrastructure; Mr. Chris Ong, CEO of Keppel Offshore & Marine; Mr. Chan Hon Chew; CFO of Keppel Corporation; Mr. Loh Chin Hua; CEO of Keppel Corporation; Ms. Christina Tan; CEO of Keppel Capital; Mr. Louis Lim, CEO of Keppel Land; and Mr. Thomas Pang, CEO of Keppel Telecommunications and Transportation.
We will begin the session with presentations by Mr. Loh and Mr. Chan, followed by a question-and-answer session. Mr. Loh, over to you, please.
Loh Chin Hua
Thank you. Good evening. Welcome to the webcast on Keppel Corporation’s First Half 2022 Results and Performance. The global economic outlook has weakened over the past few months, with the conflict in Ukraine, heightened geopolitical tensions, climate change, supply chain disruptions, and the lingering impact of COVID-19 imposing challenges on the operating environment. Inflation, interest rates and energy prices are expected to stay higher for longer, while prospects for economic growth have dimmed in many key economies.
As Keppel navigates the myriad challenges, we are also taking steps to enhance the resilience of Keppel’s operations and business. As at the end of June 2022, we have locked in interest rates for 75% of our loans, with an average interest cost of 2.56% and weighted tenure of about 3 years. This will help ensure that Keppel remains in a strong financial position to weather the headwinds.
The essential services that Keppel provides are relatively resilient during economic slowdowns, as they had been during the pandemic. In an environment where inflation is expected to persist for some time, demand for real assets with cash flow, such as infrastructure, data centers and real estate, will continue to grow. These are precisely the areas in which Keppel has strong track records and which we are focusing on as part of Vision 2030.
First half 2022 saw Keppel accelerate the execution of our vision, as we continued to simplify and focus our business, monetize our assets and grow our presence in renewables and decarbonization solutions. We have completed the divestment of Keppel Logistics and also signed definitive agreements for the proposed combination of Keppel O&M and Sembcorp Marine and resolution of our legacy rigs and associated receivables. When the O&M transactions are completed, the new Keppel will be a very different entity from what we were before. We will be a focused provider of sustainable urbanization solutions, with an asset management arm, complemented by strong engineering, operations and maintenance capabilities in Energy & Environment, Urban Development and Connectivity. As we continue to execute our Vision 2030 strategy, I am confident that we will not only enhance the Group’s earnings but also help the market to better understand and appreciate Keppel’s value.
Keppel delivered strong results in first half 2022 with the Group achieving a net profit of SGD 498 million, 66% higher compared to SGD 300 million in first half 2021. Annualized return on equity improved to 8.4% for first half 2022, compared to 5.5% for first 2021. Free cash outflow was SGD 127 million in first half 2022, compared to the inflow of SGD 499 million in first half 2021, due mainly to lower divestment proceeds. Net gearing remained unchanged at 0.68x as at end-June 2022, compared to end-December 2021.
Since the launch of our SGD 500 million share buyback program in January this year, we have repurchased 57 million shares at an average share price of SGD 6.39, amounting to SGD 364 million in the first half 2022. In appreciation of the support and confidence of our shareholders, the Board of Directors has approved an interim cash dividend of SGD 15.0 per share for first half 2022. This interim dividend, which will be paid to shareholders on 19th August 2022, is higher than last year’s interim dividend of SGD 12.0, reflecting the Board and management’s confidence in the Group’s performance and execution of Vision 2030.
We have emphasized our commitment to grow recurring income. For first half 2022, recurring income contributed SGD 202 million to the Group’s earnings, an increase of 43% from SGD 141 million in the first half last year.
Since the start of our asset monetization program in October 2020, we have announced about SGD 3.6 billion of asset monetization, and received about SGD 2.9 billion of this in cash. The most recent announcement was the non-binding term sheet on the sale of our interest in the entity which owns the Keppel Marina East Desalination Plant to Keppel Infrastructure Trust. As the developer of the KMEDP, Keppel Infrastructure will continue to operate and maintain the plant, which will add to the Group’s recurring fee income. At the same time, the asset will enhance the strength and resilience of KITs portfolio, providing greater cash flow visibility.
With the good progress that we have achieved and the line-up of assets for monetization, we remain confident of exceeding our SGD 5 billion target by end-2023. Our asset management business is not only a growing contributor to the Group, but also an increasingly important and strategic horizontal that pulls the Group together. The Group’s capabilities in developing and operating real assets across these asset classes are well appreciated by investors. This unique value proposition is something we have and will continue to leverage as we grow our asset management business. We are not just a financial investor like most asset managers. Keppel has a long history and track record of building and operating many of these real assets that investors are increasingly targeting, assets with predictable cash flow and protection against inflation.
In the first half of 2022, our asset management fees rose steadily, growing 14% year-on-year to SGD 126 million, further boosting the Group’s recurring income. Plans are in progress to launch new flagship funds such as the Keppel Core Infrastructure Fund and the Keppel Sustainable Urban Renewal Fund, in line with the Group’s focus on sustainable urbanization solutions. At the end of 2021, Keppel Capital’s AUM was SGD 42 billion. Of this, Keppel has put in about SGD 3.5 billion from our balance sheet.
We said earlier that as at end-June 2020, the Group had SGD 17.5 billion of monetizable assets, based on carrying value. These assets include our land bank carried at historical costs. Should we monetize these assets at say, a market value of about SGD 20 billion, and if we were to use SGD 5 billion of the proceeds to reward shareholders through dividends and through the repurchase of shares and also pay down debt, then we would have some SGD 15 billion to re-invest for growth. Using our asset-light model and investing alongside investors in our chosen new growth initiatives, our AUM could potentially grow to over SGD 200 billion, assuming that a similar multiplier applies.
Amidst growing concerns about climate change, Keppel is leveraging our asset-light model to seize opportunities in renewables, clean energy, decarbonization and environmental solutions, as OneKeppel. In July, we announced a joint initiative between Keppel Corporation and KIT to invest SGD 234 million in onshore wind assets with a capacity of 258 MW across Europe. This investment will provide Keppel not only with stable recurring income from the operating assets, but also a strong deal flow pipeline in well-established markets, with best-in-class operators and co-investors. Including this latest announcement, the Group has about 1.8 GW of renewable energy assets in our portfolio. This and other recent initiatives demonstrate how Keppel can quickly scale up in our growth areas and expand our sources of recurring income, without relying just on our own balance sheet.
Keppel Infrastructure delivered very strong performance in the first half of this year, with earnings rising 77% year-on-year, as we continued to make progress in supporting our communities and customers on their journeys to net zero. In June, Keppel Electric became the first entity in Singapore to be issued an electricity importer license by Energy Market Authority and commenced its first renewable energy import under a 2-year power purchase agreement for up to 100 MW of renewable hydropower from Laos. We aim to leverage this inaugural cross-border renewable power.
Trade experience and track record to scale renewables importation over the longer term, to provide low-carbon energy to our customers in support of their net zero plans.
Keppel Infrastructure continues to push the envelope for the development of more renewables and decarbonization solutions. These include an MOU with the National Environment Agency to jointly study the feasibility and explore the implementation of carbon capture at Singapore’s waste-to-energy plants, and a grant from the Energy Market Authority and JTC to pilot Singapore’s first membrane-based nearshore floating solar photovoltaic system at Jurong Island.
The property market in China faces significant headwinds, as market sentiments have been affected by debt issues faced by certain Chinese developers, the slowdown in the Chinese economy and the COVID-19-related lockdowns. Despite the short-term economic challenges, we remain confident about the long-term potential of China, especially in the key Tier 1 and 2 cities where we operate, underpinned by continued economic development and growing affluence among the Chinese people.
In the past few years, we have been increasingly monetizing Keppel Land’s sizeable landbank, as we transform Keppel Land from a traditional developer into an asset-light provider of urban space solutions. To further accelerate our asset-light strategy, we are actively exploring opportunities to significantly monetize Keppel Land’s landbank in China and Vietnam over the next one to 2 years. This includes the possibility of injecting our landbank into funds managed by Keppel. It would not only allow us to realize the potential value of our landbank, which continues to be held at cost, but also expand our AUM. Investors in these landbank funds would also be able to tap into the proven capabilities of the Keppel Land teams who have been operating in China and Vietnam for the past 3 decades. Looking ahead, Keppel Land has continued to accelerate its pivot towards providing real estate-as-a-service and is also exploring a pipeline of sustainable urban renewal and senior living projects across key markets.
To be clear, whilst income-generating real estate and real estate services will remain a key focus for the group, the future Keppel will not be just a real estate company after the logistics sale and proposed Keppel O&M spinoff. As part of Vision 2030, Keppel will also focus on flagship offerings in energy transition and decarbonization, environmental engineering solutions and connectivity, with a symbiotic asset management business to turbo charge growth and create value for the Group. Such flagship offerings will increasingly be integrated horizontally such as in our data center business. We will seek to provide our clients with not just data storage services but also green electrons to support their net zero ambitions, energy efficient district cooling services as well as an efficient capital funding and recycling model through our private data center funds and Keppel DC REIT.
We continue to grow our portfolio of data centers in key markets. We have just announced our sixth data center project in mainland China, to cater to the strong demand for data centers, driven by the country’s continuing digitalization and data localization requirements. In Singapore, we are also actively working with the government and partners to introduce green power and energy efficient infrastructure for both our new and existing data centers.
M1’s earnings grew significantly, rising 62% year-on-year in first half 2022, underpinned by strong execution of its transformation plans and continuing growth in the enterprise business, coupled with the increase in roaming and prepaid revenues following the progressive reopening of economies. M1 continues to make good progress in its 5G standalone network rollout. We have achieved more than 80% outdoor coverage as at end-June 2022 and are on track to achieve nation-wide outdoor coverage by early-2023. M1 is also actively collaborating with other Keppel business units and industry partners to create smarter, future-ready solutions and more 5G use cases. A case in point is M1’s collaboration with Keppel Land to transform i12 Katong into a 5G-enabled shopping mall.
The outlook for the O&M sector continues to improve with the increase in oil price. In the first 6 months of 2022, Keppel O&M secured SGD 256 million of new orders, bringing its net orderbook to SGD 4.4 billion as at the end of June. In the latest Petrobras tender, Keppel O&M was selected as the only qualified bidder for the P-80 FPSO project. Keppel O&M is presently in advanced discussions for the P-80 contract as well as an option for a second FPSO. The 2 FPSO projects, if awarded, would add over SGD 8 billion to Keppel O&M’s orderbook. Both FPSO projects will have milestone payments with a 10% deposit upfront from the customer when the contracts are executed.
Keppel O&M was profitable in first half 2022. Op Co, which will travel across to merge with the new Combined Entity, minus the legacy rigs and the out-of-scope businesses, made a net profit of S$94 million in the first half of 2022. Preparations to complete the proposed O&M transactions are progressing well. Anti-trust filings have been lodged in different markets and we are hopeful that approvals will be obtained within our expected timeline. Both Keppel and Sembcorp Marine are also concurrently working on submitting the relevant applications to SGX for the respective shareholder meetings to approve the proposed combination.
In the meantime, Keppel O&M is making encouraging progress with its legacy rigs. The near-term shortage of modern rigs has led to an increase in enquiries, as well as utilization and day rates for benign environment jackups and floaters. In May, Keppel O&M announced some SGD 255 million worth of bareboat charter contracts for 4 of its legacy jackups, with charter periods of 3 years to 5 years. Keppel O&M is also engaging potential buyers for some of its rig assets. Given the improved market sentiments and traction achieved thus far, we are confident the legacy rigs can be substantially monetized over the next 3 years to 5 years.
We continue to work towards completing the proposed O&M transactions by the end of 2022. As announced, when completed, we will distribute substantially all the shares of the combined entity that we will receive, as a distribution in-specie to Keppel Corporation’s shareholders. The distribution of this 46% stake in the combined entity to our shareholders will be approximately 18.5 shares of the combined entity for each share of Keppel Corporation that our shareholders hold. The final value of this distribution will depend on the actual traded price of the combined entity after the completion of the deal. For illustrative purposes, based on the volume weighted average price of Sembcorp Marine at the time of the signing of the definitive agreements, the value of shares of the combined entity that each Keppel Corporation shareholder will be entitled to for every share held is approximately SGD 2.26.
Together with SGD 4.05 billion comprising vendor notes, perpetual securities and a 10% stake in Asset Co, as well as the SGD 500 million that we will receive in cash, Keppel can realize approximately SGD 9.42 billion in value from the proposed transactions, which is equivalent to SGD 5.32 in value per share of Keppel Corporation. This does not include approximately SGD 300 million in out-of-scope assets which will continue to be held by Keppel Corporation.
To conclude, climate action and the energy transition are expected to gather pace. At the same time, considerations related to energy security would become increasingly critical to governments, driving demand for sustainable energy infrastructure. With the global push towards net zero, sustainability-related products and services will be a major growth sector, auguring well for Keppel’s energy efficiency, carbon abatement and clean energy solutions.
These are thus very exciting times for Keppel as we prepare for a new phase in the Company’s growth journey. Keppel is in the right space, at the right time. We have the ability to create, operate and maintain not only real assets with stable cash flows, but also assets that are highly sought after amidst the global emphasis on sustainable development. Through our focus on sustainability, being asset-light and harnessing technology, we will deliver solutions that contribute to sustainable urbanization and climate action, and create value for all our stakeholders.
Our CFO will now take you through the group’s financial performance, Hon Chew?
Chan Hon Chew
Thank you, Chin Hua, and a very good evening to all. Before I take you through the Group’s financial performance, I would like to bring to your attention that, in accordance with the relevant accounting standards, the results of Keppel Offshore Marine, excluding certain out-of-scope assets, are presented as discontinued operations, with comparative information re-presented accordingly. The Group has also ceased depreciation of the relevant assets that have been classified under disposal group held for sale. These follow the definitive agreements for the proposed combination of Keppel O&M and Sembcorp Marine, as well as the definitive agreement with Baluran Limited and Kyanite Investment Holdings Private Limited, for the sale of Keppel O&M’s legacy rigs and associated receivables to a new and separate entity.
For the first half of 2022, the Group’s net profit including discontinued operations was SGD 498 million, representing a 66% or SGD 198 million growth year-on-year. If we exclude the results of discontinued operations, the Group’s net profit from continuing operations grew 26% to SGD 434 million as compared to SGD 344 million in the same period last year. All segments were profitable with improved year-on-year performance from Energy & Environment and Asset Management. Consequently, annualized ROE improved strongly from 5.5% to 8.4%.
In the first half, our Urban development and asset management businesses continued to contribute significantly to the Group, accounting for 65% of the Group’s profits. Corporate & others, which continued to record strong returns from our investments in start-ups and venture capital funds, contributed SGD 56 million in earnings, representing 11% of the Group’s profit. Energy & environment contributed a net profit of SGD 45 million, or 9% of the Group’s bottom-line, reversing its net loss in the prior year. Discontinued operations registered a net profit of SGD 64 million, reversing the net loss of SGD 44 million in the first half of 2021. I will further elaborate on the performance of each segment later on.
Beyond the growth in profitability, the Group has maintained a healthy balance sheet. Net gearing was stable at 0.68x as at end of June 2022 as compared to end of 2021, despite the slight increase in net debt. Capital employed has increased due to the earnings growth and movements in other reserves during the half year.
Free cash outflow was SGD 127 million as compared to free cash inflow of SGD 499 million in the same period last year. This was largely due to lower divestment proceeds from asset monetizations completed and higher investments made during the current half year, partly offset by improved working capital changes.
In addition to the increase in recurring income as highlighted by CEO earlier on, other income streams such as revaluation and fair value gain on investments has also performed better year-on-year. Recurring income improved 43% to SGD 202 million in the first half of 2022, underpinned by stronger share of results from an associated company involved in the integrated power, gas and renewable energy business under Keppel Infrastructure, lower share of losses from Floatel, as well as higher net profits achieved by M1.
Fair value gains on investments were driven by the strong returns from our investments in new technology and start-ups such as Envision AESC Global Investment L.P. and Vertex Ventures. The Group also continued to record revaluation gains from investment properties and data centers in the current half year. Earnings from development for sale were lower year-on-year mainly due to lower contributions from trading projects in China and the absence of en bloc sales.
Moving on to the performance by segment. Energy & Environment’s net profit for the first half was SGD 109 million, a sharp reversal from the net loss of SGD 179 million in 2021, which had included an impairment of SGD 318 million related to the Group’s exposures to KrisEnergy, partially offset by share of Floatel’s net restructuring gain of SGD 215 million.
Our infrastructure business achieved a 77% in net profit to SGD 106 million. All key sub-segments of Keppel Infrastructure recorded higher year-on-year net profits, backed by strong execution of ongoing projects — operations and projects, and a higher share of results from an associated company as mentioned earlier.
Discontinued operations recorded a net profit of SGD 64 million, reversing the net loss of SGD 44 million in 2021, underpinned by Keppel O&M’s improved performance. In addition to revenue recognition from new projects, Keppel O&M also recorded higher investment income, improved results from associated companies, as well as gains from divestment of Keppel Smit Towage and Maju Maritime. As mentioned earlier, the Group has also ceased depreciation for the relevant assets that have been classified under disposal group held for sale.
Urban Development’s net profit was lower year-on-year at SGD 168 million due to lower contributions from China trading projects and fair value gains from investment properties. There was also an absence of gain from en bloc sales in the first half of 2022, as compared to a SGD 53 million gain recognized from the sale of our interests in the Dong Nai project in Vietnam last year.
Contribution from the Sino-Singapore Tianjin Eco-City was lower as there were no land sales in the current period, compared to the sale of a commercial and residential plot achieved in first half of 2021.
Connectivity’s net profit was lower year-on-year at SGD 10 million mainly due to the absence of a gain from the disposal of interests in Keppel Logistics [Foshan] in 2021. This was partly offset by gains from divestment of Keppel Logistics Private Ltd and Indo Trans Keppel Logistics Vietnam Ltd.
M1’s mobile and enterprise revenue grew as it continues to expand the enterprise business and 5G offerings. Net profit from M1 was 62% higher at SGD 34 million on the back of better operating results underpinned by higher revenue and lower depreciation and amortization expenses, which were partly offset by network service fee expenses.
Performance of the data center business was lower as compared to first half of 2021. This was mainly due to the absence of fair value gain from Keppel DC Frankfurt 1 that was divested in September last year. Earnings from our data center business shown on this slide do not include about SGD 20 million earnings from Keppel DC REIT and the data center private funds, which are reported under the Asset Management segment.
Asset Management achieved an increase of 32% in net profit to SGD 155 million in the first half of the year. The strong performance was underpinned by higher fee income arising from successful acquisitions by the REITs & Trust during the period, as well as higher fair value gains on investment properties and data centers recorded by the REITs and private funds. These were partly offset by the absence of mark-to-market gains from investments recognized in 2021. The lower net profit from the private funds was mainly due to the absence of contribution from a fund that was liquidated in 2021.
Contribution from corporate & others remained stable at SGD 56 million despite the absence of distribution income from iGlobe Partners Platinum Fund I recognized in the first half of 2021. As shared earlier, our investments in new technology and start-ups continued to yield good returns that supported the SGD 94 million of fair value gains recorded in the first half of 2022, mainly from investments such as Envision AESC Global Investment and Vertex Ventures. The positive variance was partly offset by higher interest expense attributable to this segment and the absence of gain from the disposal of a non-core asset recognized last year.
To round up, the Group has delivered strong financial performance for the first half of 2022, as evidenced by the sharp ROE improvement, healthy net gearing and higher recurring income.
With that, we have come to the end of the presentation. I shall hand the time back to Chin Hua, for the Q&A section. Thank you.
Question-and-Answer Session
A – Loh Chin Hua
Thank you. Thank you, Hon Chew. So we reached the Q&A session. Please submit your questions on the net, and we will endeavor to answer them. Okay, the first question is from Tan Shin of Goldman Sachs in Singapore. On Slide 8, for the potential SGD 200 billion AUM, what is the time line that Keppel Corporation is hoping to achieve that?
There is no time line that we are giving. I think we’re just showing that based on our asset-light model and our monetization plans, we can potentially grow Keppel Capital to SGD 200 billion AUM. The time taken will, of course, depend on market conditions. But I think this is an achievable and quite a realistic potential AUM for Keppel Capital.
Can you also talk about the asset classes and geographies of the additional potential AUM? Maybe I ask Christina?
Christina Tan
Thanks, Tan Shin. With regards to the asset classes and geographies, we will actually focus on what Keppel is strong at. So in areas of like what we’ll call energy and environment, so providing clean energy, clean water, we will also focus on areas in connectivity, which is our data centers, our subsea cables area. And of course, not forgetting urban development and solutions. So in terms of geography and asset classes, it’s probably where Keppel has shown it’s capabilities and strength. And I think our investors actually like Keppel Group because of our capabilities as a developer, operator and manager. So we are very confident that we will be able to continue to grow our AUM of the support of all our sister BUs, realizing the potential for us. Thank you.
Loh Chin Hua
Thank you, Christina. Next question. Next question submitted by Terence Chua of Phillip Securities, Singapore. Terence has 2 questions. First question, could you provide us more insight into the China projects? I think he’s referring to the real estate projects. And how much have the average selling prices and sales fallen for the China projects? Maybe I ask Louis to answer this.
Lu-yi Lim
Thank you for the question, Terence. I think as CEO mentioned in his speech, we are clearly facing headwinds in China with the deleveraging policies as well as the COVID situation. The impact on sales has been significant for the largest developers across the market. We have seen a 50% drop in units sold for Keppel Land in China, we have also seen about 2/3 drop from 1,550 units that we sold in the first half of last year to 480 units for the first half of this year.
In terms of the selling prices, though, because we are in some of the key markets like Shanghai and Wuxi, actually, the secondary market pricing is quite strong. So again, the government sets limits on pricing. So we actually haven’t seen a significant drop in prices for those particular cities and micro markets that we are in. We maintain a very positive view on the medium to long-term prospect for the Chinese market. I think in the meantime, we will continue to see headwinds. But that said, over the last month in June, if you look at the high-frequency data, it’s actually improved significantly with an increase in sales in June for about 61% versus the previous month. For Keppel Land China as well, we saw a very good recovery in our project in Wuxi, Seasons Residences and June saw Keppel Land having the highest number of units sold in China.
Loh Chin Hua
Thank you, Louis. Terence has a second question, which is related to the first, which is, do you foresee any impairments in 2022? And for this? Maybe I’ll ask Hon Chew, CFO, to answer.
Chan Hon Chew
Thank you. Thanks for the question. As part of the process in preparation of the results announcement, we have reviewed all the projects under development and the conclusion is that there’s no need for any impairments. For the land bank, as we have always said, it’s actually a cost that’s really very low risk of any impairments.
Loh Chin Hua
Yes. Thank you. I think maybe just to kind of add to that is that our land bank historically has been bought. They are, on average, more than, I think, 7 years old. So they are bought at a much lower price than what it is the market, considered to be the market value today. So the risk of impairment from the land bank is fairly limited.
Next question. This is submitted by Mayuko Tani of Nikkei in Singapore. She has a couple of questions on data centers. Maybe I will start with the first question and ask Thomas to address it. Thank you for the presentation. Please give us an update on new and green data center development plans within Singapore as well as globally. Thomas?
Thieng Hwi Pang
Thank you very much, Mayuko-san for the question. Keppel is indeed interested to participate in the government’s call for application for data center innovation projects in Singapore. And we are looking to bring several innovative solutions to the proposal, including a floating data center module as well as a larger project that could aggregate demands from various players. And we are at the stage of discussing with potential partners to bring in renewable energy as well as green molecules into Singapore in order to satisfy this energy security as well as energy efficiency that we want to bring to our data center projects in Singapore. And going forward, the similar concept could be exported to other countries that have similar requirement as well as a constraint in land availability in their location. So these similar concepts could be exported to the regional countries as well.
Loh Chin Hua
Thanks, Thomas. I think you answered the 3 questions really well. Anything else you want to add? Anything on the floating data center project you want to — I guess this is referring to the floating data center module that we had earlier briefed the market on.
Thieng Hwi Pang
Yes. We have made quite a lot of progress on that floating data center module and at a stage that when we are able to make an announcement, we’ll make the announcement when approval are obtained.
Loh Chin Hua
She has a third question, which is, what other technologies are you interested in? Would you like to address that?
Thieng Hwi Pang
So one of the technology that we use in data center group is in helping to reduce the energy required in cooling, which takes up a lot of electricity in every data center project. So we have invested in a technology company in the U.S. called Nautilus. We participated in equity of that company. They have launched our first floating data center module in California, and it uses sea water for cooling of the data center and has brought the power utilization efficiency, the POE down significantly, and it is receiving a lot of attention from the market. One of the technology we would use in the Singapore project will likely be seawater cooling to help with energy efficiency as well.
Loh Chin Hua
Okay. Thank you, Thomas. This next question is from Terence Chua of Phillip Securities, Singapore. Terence has 2 questions. Hi, management. Thanks for the presentation. Can you provide more insights into the proposed O&M transactions? How far along have you moved since the announcement?
Terence, I will try to address this. I think in my — when we first announced the signing of the definitive agreement, we have spoken about how this is a win-win-win proposal in terms of it’s good for Keppel Offshore Marine. And of course, we believe it’s also good for SembMarine. And more importantly, I think it strengthens us to create a new global champion, focused not just on the traditional O&M business, but increasingly on the energy transition.
And I think this is — the recent months with oil price increase and the improving sentiments on the O&M sector, I think this all bodes well for a combined entity. In terms of how far along have we moved, I think we have made a good progress. As reported in my opening remarks, we are making good progress in terms of the applications for the antitrust. We are — we believe we are on track for the completion of the transaction sometime in the fourth quarter.
Of course, we are also preparing — both sides are also preparing to submit the necessary applications to SGX to requisition the EGMs that are required for their respective shareholders on both sides to vote on the proposed transaction. So that is — so all the work that we’ve been doing is progressing well. The 2 teams are also working closely on preplanning for integration. So there’s also a bit of work there, and we have — I believe there has been also good progress on that front.
Next question is from Pei Hwa of DBS in Singapore. Congrats on the good results. On the property market in China, could management elaborate a bit more on near- to medium-term outlook and strategy to navigate through the uncertainties. How should we think about Keppel’s ongoing projects and new launches ahead as well as capital recycling activities in China.
I believe Louis has already provided a bit of details on this China property market. But maybe I’ll ask him to see whether you want to elaborate further based on the questions that Pei Hwa has raised.
Lu-yi Lim
Sure. Thank you, Pei Hwa. I think as I mentioned, the more recent data gives us some cautious optimism in terms of how the market will go forward. But we do think that in the near- to medium-term, it will be bumpy. There will be stop-start activities as a result of potential COVID lockdowns. So I think we need to be nimble. But the opportunity for us in this period of time is, again, that the Chinese developers may find some challenges with debt financing, and that’s where we may be able to come in to partner with them and selectively invest in some key micro markets. Again, as I mentioned, the average selling price for some of the cities that we’re in have held up well, but that’s not the same across the board, as you would expect. So I think where we choose to play is going to be quite important.
In terms of capital recycling, I think we, as you’re aware, have an asset monetization plan for some of our assets in China. Given the current sentiment in the market, we will obviously think about timing when we get the best value from any monetization efforts.
Loh Chin Hua
Thank you, Louis. I think on this point on asset recycling, I think we’ve mentioned before that we have quite a large pool of assets to monetize. And of course, we have certain plans. We have different waves. And when there is some resistance encountered because of market conditions, we have the option of moving forward some of the assets that are scheduled for recycling in later years, moving them to the left. So this would hopefully keep — we believe, will keep our program on track.
Next question? Okay, submitted again by Terence Chua of Phillip Securities in Singapore. His question, could you provide us with an update on the bifrost cable system, Thomas, please?
Thieng Hwi Pang
Thanks, Terence. The manufacturing of the cable and the electronic components of the system started in December 2021. And the marine survey for the cable routes have also been completed in April this year. We are currently applying for permits from the various regulatory authority for the cable lay approval, and we expect the cable to start — the cable lay to start in early 2023 and aiming for RFS in 2024. And I think I would also like to add that cable is attracting a lot of interest, and we have — already have 3 cables committed to customers.
Loh Chin Hua
Thank you, Thomas. Okay, this next question is submitted by Rahul Bhatia of HSBC Research in Singapore. Rahul has 2 questions. First question, more than 70% of the SGD 500 million planned buyback is already completed. Does the management intend to carry on beyond the SGD 500 million, given the increased authorization of 5% buyback given at the AGM?
Rahul, I think the 5% increase, of course, is very helpful as we kind of embark on this share buyback. But the original intention and the intention of this share buyback has couple of folds. One is we think that as we look at some of our M&A transactions, particularly involving founders platform, we think that sometimes it might actually be — we may achieve better alignment with the founders where we pay partly in cash, partly in shares. So the share buyback is partly to fund debt and also, of course, to fund our share plans at Keppel. If and when the shares are used and we would then relook at it, but at this point in time, we still have a balance. So I think we will complete these share buybacks first.
Second question is how — what should we expect in terms of dividend for second half 2022?
I think when the Board met to discuss the interim dividend, I think this, of course, reflects how we, as a group, have performed in the first half. And we have also looked at what we think we will do in the second half, of course, this is subject to us achieving our forecast. And this is increasingly, of course, also a bit challenging given the external environment. So the final dividend, of course, will be decided at the end of the year or the beginning of early next year. But the interim dividend reflects the confidence of the management and the Board that we will reflect the confidence that we have in our performance.
Next question also submitted by Rahul. Could you share if there are new property project launches expected in second half 2022, especially in Vietnam and China? Can I ask Louis to address this?
Lu-yi Lim
Yes. Thank you for the question, Rahul. There will be new property project launches in China. We are looking at launching some units for Phase 5 of our Seasons Residences project in Wuxi. In Vietnam, we’re looking at 3 launches for Celesta Avenue, Celesta Gold as well as Empire Sky Residences. I think we’ve talked about some approvals that we need to get in the past and trying to push on them. I’m pleased to announce that we have got the construction permit for Celesta Gold. And we also have the project approval for Celesta Avenue secured. Beyond Vietnam and China, we are also looking at Albania and India for more units to be launched as well as Wisteria in Indonesia.
Loh Chin Hua
Okay. This is submitted by Paul Chu of Phillip Securities in Singapore. Paul has 2 questions. The first question is on the electricity market. But before I ask my colleague, Cindy to address it, he has a second question, which is related to the earlier question. And that is, will Keppel be canceling the shares bought back?
As I was explaining to Rahul, the shares buyback program is to fund share plan as well as potential M&A transaction. So the current plan is not to cancel the shares buyback at this present time. Cindy, can you address the first — let me read the first question. From Paul Chu, can you discuss electricity spread in Singapore? What is driving the improvement in, if any, especially with the usually high reserve margin?
Joo Ling Lim
Thank you, CEO. Thank you, Paul, for the question. The electricity spread is driven by multi factors such as the availability of gas supply, planned outages of generators, including the economic activities that’s picking up in Singapore. Last but not least, there’s also a function of the weather, which impacts the efficiency of generation. Suffice to say, for Keppel Electric, we actually run an integrated energy business where we also control upstream steady fuel supply. We run our own 4 units of generator, and we have a very reliable and proven electricity retail downstream. So I think this is hopefully supplemented in the longer term. We have also supplies of renewable electricity.
Loh Chin Hua
Thank you, Cindy. Next question is submitted by Ezien Hoo of OCBC Bank in Singapore. Thank you for the presentation. Keppel is in the midst of making a number of new investments and expansion into new businesses. What are the metrics that Keppel use to track, monitor the success of these expansions?
It’s a very good question, Ezien. I think this is something that is top of mind for us. I wouldn’t say that we are expanding into a lot of new businesses. I think these are — a lot of them are quite close adjacencies. But whatever it is, whether it’s into an existing area or into a new adjacency, we will be very disciplined in how we approach these investments. We have a very demanding internal underwriting process. All the CEOs and myself, we are part of a group that looks at all the key investment and divestment decisions across the group, supported by a very strong working team, which will obviously look very closely at the return projections and of course, also at the risk that we are going to take on. Ultimately, we are driven by what we call risk-adjusted returns. And of course, after the transaction has been done, that’s not the end of it. We will still keep track of how the various investments are performing. And I’m sure there are also lessons that we can draw from this that will then add to our experience and track record and allow us to be a better investor going forward.
Second question that you posed is, does Keppel Land view Capital Land as a competitor in Vietnam and China?
I think first and foremost, Vietnam and China are very large markets. So there are many players in that market, not just Singapore companies. Each one will play to their strengths. And we believe for Keppel Land, we have certain strengths in this market when we compete. And as I said, we’re not only competing with Singapore companies, but also local companies and other international developers. This is our 30th year operating in Vietnam, and we are also quite close to that mark in China. So we believe that we have done our dues. We have very strong teams on the ground who are very good at executing, and we believe that puts us in good stead.
Next question is submitted by Mervin Song of JPMorgan. Some of your alternative asset manager peers have noted that their capital partners are more cautious in deploying capital, given the uncertain macroeconomic backdrop and the risk of cap rate expansion. Is Keppel Capital experiencing similar concerns? And should we expect slower AUM growth ahead? Maybe I’ll ask Christina to address this.
Christina Tan
Thanks, Mervin. Actually, on the contrary, we are — I mean, experiencing — when we talk to investors, actually, we realized that a lot of CIOs are actually reallocating the portfolio. They are actually downsizing the bond portfolio and actually increasing the allocation to alternative asset classes. And I think we are able to confidently say that our AUM growth will be strong because Keppel is actually in the right place at the right time. And we are doing the right asset classes.
We are looking into things like data centers, infrastructure and real estate. And I think what — investors are looking for assets that have long-term cash flows. And I think the sectors that we are looking at actually fit right into this area that we are experiencing, like for infrastructure, for example, that’s actually — is part of an essential service.
And actually, investors like it for its core nature that is able to generate very stable long-term cash flows for them. And actually, inflation hedge as well and CPI index as well. So I think probably the sectors that we’re in could be different from our competitors. But because of the strength of the Keppel Group, we are actually more confident in terms of the environment right now that we will be able to experience a higher growth in AUM.
Loh Chin Hua
Thanks, Christina. Next question is submitted by Low Horng Han of CLSA in Singapore. Horng Han has 2 questions. First question from Horng Han. Given the change in investment climate in places such as China, would Keppel be reviewing its SGD 5 billion disposal target?
I think Horng Han, we had addressed this earlier. It’s true that China is facing some short-term headwinds. But as I have shared, we do have quite a large pool of assets from which we can monetize. And we have programs in place for different streams of assets, different waves of assets that are being monetized. And we will then relook at this and see whether there are assets in the street in the later years that we can move to the left in different markets. So this — so we remain confident that we will not only meet, but we will exceed our SGC 5 billion target for 2023.
Second question from Horng Han is on — from O&M, and I’ll ask Chris Ong to address this. On P-80, will part of the work be outsourced to third parties, example, construction of the hauls? If so, what will be the net contract value per FPSO.
Leng Yeow Ong
Thanks, Horng Han, for the question. P-80, there will be outsourced components like what you mentioned, construction of haul, but regardless, KOM is fully responsible for the EPC contract. So in such a way that we will be project managing, and there’s no difference when we subcontract to the components within our yards. So the full contract value will flow through the revenue of KOM.
Loh Chin Hua
I think when we look at margins, we also look at the overall project, right?
Leng Yeow Ong
Yes, that’s right. When we — the philosophy of outsourcing is based on the best and most economical model and the margin is considered with the full contract price in play.
Loh Chin Hua
Thank you, Chris. Next question is from Paul Chu of Phillip Securities. Maybe I’ll ask Chris to address this first question as well. Can you provide any updates on Asset Co’s progress in monetizing the legacy rigs?
Leng Yeow Ong
So far, we have good progress in terms of monetizing whether it is through finding bareboat charters and eventually making the rig operational or discussing with potential client in asset sale. The B classes is what the CEO has mentioned. In the first half, we have found bareboat charters for 4 of the rigs. And we are also in discussion with potential buyers for some of the rigs.
Loh Chin Hua
Second question, maybe I’ll ask Hon Chew to address. Second question from Paul is also can you remind us of the amount of equity injected by Kyanite and Baluran into Asset Co?
Chan Hon Chew
Yes. Thanks, Chin Hua. I think when we announced the definitive agreement, we did say that the net tangible asset funded by the core equity amounts to about SGD 624 million, and of which, as we have also said, we have — we will be putting about SGD 120 million of perks and SGD 0.5 million of core equity. So the rest will be funded by Baluran and Kyanite.
Loh Chin Hua
Next question submitted by Terence Chua of Phillip Securities. Thanks for the explanation, Chin Hua, I appreciate it. I have a follow-up question on the Keppel O&M and SMM transaction. Can I find out if there are any contingencies that Keppel has made if the deal does not go through?
Well, I think this is highly speculative, Terence, and I would not want to address it. I think, as I have mentioned, all the preparation work is on track. Of course, at the end of the day, we still need to clear the antitrust as well as to clear shareholders on both sides. What I would say is that, I think, as you have seen from our report, for the first half, Keppel O&M has performed well. We are now — we are making profit for Keppel O&M. The opco that will travel across, minus the legacy rigs as well as the out-of-scope businesses, in fact, have performed even better than KOM on as a whole. Order book is good, and we have a prospect of adding quite a significant chunk to the order book, assuming that the 2 FPSO projects get signed up. So I think KOM is in pretty good shape. And of course, on the legacy rigs, we have also reported that things are — the conditions — the market conditions have improved and the potential for us to monetize substantially most of these rigs in the next 3 to 5 years is very good.
This is from — next question is from Tsu Wei of Macquarie, Singapore. Hi, management, congrats on a good set of results. Tsu Wei has 2 questions. First one, I note that you have a single client in energy and environment, contributing SGD 1.1 billion in revenue. Can you elaborate? Maybe, can I ask Cindy to address that?
Joo Ling Lim
Thank you, Tsu Wei. In energy environment, we recorded pretty strong revenue of first half coming from the power business as well as the progressive recognition of revenue from our Hong Kong integrated waste management project. Specific to the single client that’s contributed SGD 1.1 billion in revenue, it is actually our customer, Energy Market Company, EMC.
Loh Chin Hua
Thanks, Cindy. Tsu Wei has a second question. The dividend of SGD 0.15 represents a payout slightly above your historical range of 40% to 50%. Can we expect similar dividend payout ratio in second half 2022? Maybe, Hon Chew, would you like to address that?
Chan Hon Chew
Yes. Thanks, Chin Hua. I think earlier on Chin Hua also talked about the dividend for the full year. I just want to add that when looking at the dividend, we also look at the progress of our asset monetization that gives us more confidence in the dividend when we look at it for the full year. So looking at the 40% to 50% or slightly higher in terms of the payout ratio is something that is still achievable.
Loh Chin Hua
Next question is from Lim Siew Khee of CGS CIMB in Singapore. Siew Khee is happy with the SGD 0.15 EPS, though the asset monetization pace has been impacted by the current environment. Do you think the pace of monetization will pick up in the second half of 2023?
I’ve addressed this earlier, Siew Khee. I think we remain very confident that we will exceed our target of SGD 5 billion by the end of next year, so for the various reasons that I have earlier said.
Second question from Siew Khee, what is the SGD 61 million under Others in energy and environment, mainly due to? So maybe, Hon Chew?
Chan Hon Chew
Thanks, Chin Hua. They are mainly attributable to interest costs as well as share of Floatel’s results, given that Floatel is our scope, that’s why it’s not under the discontinued operation, but it’s shown under Others. So those are the main components.
Loh Chin Hua
Next question is from Mervin Song of JPM in Singapore. Prior to the privatization of M1, 4Q ’17 to 4Q ’18 quarterly profit after tax was SGD 25 million to SGD 36 million. Second quarter ’22 net profit now stands at SGD 34 million. Adjusted for difference in capital structure, how far away is M1 achieving pre-COVID profitability? Second question, with resumption of travel, how the second quarter ’22 roaming revenues compare to 2019 levels? That means pre-COVID. Can I ask Manjot to address this?
Manjot Singh Mann
Yes. Thanks, Mervin, for the question. Let me answer your second question first. At this point in time, for Q2 of 2022, we are at about half of our pre-COVID roaming revenues. And that’s primarily because China is yet to open up, which contributes quite significantly to the roaming revenues in Singapore. So as roaming opens up and with our increase of consumer base, along with our increasing enterprise revenue, I think we’ll be on course to achieving our pre-COVID profitability as roaming improves more in 2023. So actually, all our business indicators are traveling in the right direction. And therefore, profitability is a matter of time.
Loh Chin Hua
I think also part of the transformation that we’re undertaking in M1, the share of the profit from the different segments may be different from before we privatized M1. I mean, you have more enterprise, et cetera, et cetera.
Manjot Singh Mann
Yes. And 5G, of course, will also contribute.
Loh Chin Hua
Next question is from Jame Osman of Citi, Singapore. Could you share what the contribution of renewables-related business earnings was to the Energy & Environment segment in first half 2022? And also, what do you expect the contribution would — could grow to in the coming years with the recent investments made in the space?
The amount, I believe, is still quite small in the first half because this is still a nascent segment that we’re going into. So there are 2 types of investments that we have made in broad terms in this space. For those investments, like what Keppel Renewable Energy is doing in Australia, where we are building greenfield. It will take a few years before they become cash flow generating and become profitable. So that will take a bit longer to build.
But at the same time, of course, you will note that we have also recently done transactions like Cleantech, the platform in C&I space for rooftops. That one is an existing operation, so we would expect to have — to see some contributions. And then, of course, more recently, our investment, together with KIT into some wind assets in the European Nordics, I think those are operating assets, so you will start to see some income coming through.
But I just wanted to be sure to say that the investments are there. We believe that this is a very big growth segment and aligned with what we’re trying to do for Vision 2030. And this is something that we’ll continue to build on, not just using our balance sheet, but working alongside the investors under Keppel Capital.
Next question from Siew Khee. She has 2 questions. One is on the loss, the other one is on the gain. So the first question is what is the SGD 8 million loss in logistics related to in connectivity? Second question, how come the profit from M1 jumped 62% year-on-year, though revenue only up by 6% year-on-year? So maybe, Hon Chew?
Chan Hon Chew
Thank you for the — Siew Khee, for the question. On your first question on logistics, the SGD 8 million loss is basically the operational loss of the logistics business, including the loss from Keppel Logistics before the sale, that is partly offset by the gains from the sale of Keppel Logistics and also Indo-Trans-Keppel Logistics Vietnam. As for the second question, the profit of M1 jumped 62% year-on-year, though revenue only grew by 6%. So it’s partly due to revenue growth and improvement in the M1 operations, but also the other reason is this is the first half year after the monetization of the network assets by M1 to Keppel DC REIT. So as a result, because now M1 is more asset-light, as a result, the depreciation is no longer with M1. The depreciation has reduced. At the same time, interest expense is also reduced. In that place, we pay a network service fee, which is lower than the savings in depreciation and interest expense. As a result, M1’s profit has gone up by 62%.
Loh Chin Hua
Next question is from Terence Chua of Phillip Securities, Singapore. Can you give us more details on some of the offshore and marine projects that were completed in the first half 2022? Chris?
Leng Yeow Ong
Thanks, Terence. For the first half of 2022, KOM delivered 6 projects, which comprises of conversion projects, repair projects and also newbuild projects. We have delivered 1 newbuild dredger, 1 wind turbine installation vessel-like structure, 1 wind turbine installation vessel upgrade, FSRU conversion, 1 dredger jumboization and 1 LNG carrier upgrade.
Loh Chin Hua
Next question. This is from — submitted by Mr. Teo. So I think he must be a retail investor, I suppose, he’s based in Singapore. Is there any further updates on — or developments on Keppel’s previous bid for SPH?
There’s no update. I mean you know what has happened. So as far as we are concerned, at this point, we didn’t win, but life goes on. I think we have quite a lot of things on our plate, and we are focused on that.
Will there be any fees payable to Keppel since the deal did not materialize?
There is an arbitration process that is ongoing. I can’t say much more than that.
Okay. I believe we’ve come to the end of the Q&A session. Thank you all for joining us, and have a great evening ahead. Thank you very much.
