Keppel Limited

[weijian]

Keppel Corp has changed its name to Keppel Limited. Of course, things don't just change because of some logo or rebranding. But Keppel has been doing right and moving in the right direction (ie. from "Corp" to "Limited").

CEO bringing up "RNAV" is interesting. "RNAV" always pops up whenever minorities lament at how cheap companies are. I wonder if it is reflective more of whether the company really isn't that good, OR it is really cheap?

RNAV make sense when the company is for sale/take-over. But anything beyond that, talking about RNAV is probably reflective of the fact that a company isn't that good. That probably explains why the CEO of Keppel Limited doesn't want to be associated with "RNAV" as well!

MINUTES OF THE 56th ANNUAL GENERAL MEETING

CEO concluded that Keppel today is run more efficiently as one company (as opposed to what it used to be, a conglomerate of diverse operating companies). Keppel’s earnings are now more recurring and should attract growth multiples rather than being valued based on price to book and discount to RNAV with a further conglomerate discount. CEO noted that Keppel is well positioned to ride the next wave of quality sustainable growth.

https://links.sgx.com/FileOpen/GCAT_Minu...eID=802316

[ghchua]

Hi weijian,

CEO bringing up "RNAV" is interesting. "RNAV" always pops up whenever minorities lament at how cheap companies are. I wonder if it is reflective more of whether the company really isn't that good, OR it is really cheap?

Well, its unfair to label minorities are the only ones bringing up the RNAV issues. Analysts often too bought it up and companies themselves also presented those numbers in their annual reports. Tokyo Stock Exchange and SGX had also bought up this issue recently.

Whether the company is good or not is besides the point. The fact is that companies trading below RNAV are generally regarded as cheap. Efforts should be taken by companies to enhance corporate value and optimise capital efficiency to narrow the discount to RNAV.

RNAV make sense when the company is for sale/take-over. But anything beyond that, talking about RNAV is probably reflective of the fact that a company isn't that good. That probably explains why the CEO of Keppel Limited doesn't want to be associated with "RNAV" as well!

I disagree with your views here. Keppel Limited do not wish to be associated with RNAV measurement because they are going asset light. For companies which are still asset heavy or not intending to become asset light in the near future, RNAV is still a good gauge to measure the value of the company, with respect to its current trading price. This is especially true for those that are still making losses, as there is no earnings to measure ROE, PE etc.

[weijian]

hi ghchua,

Thanks for reminding me that companies and analysts use RNAV too. So I reckon as long as the group as a whole has tendencies to refer to RNAV, good chances the companies are "asset heavy/no intention to go asset light/no earnings etc" (as you have rightly pointed out) - red flags for my consideration.

You are spot on wrt to the reason why Keppel Limited do not wish to be associated with RNAV measurement - They have every intention to go asset light. And isn't what OPMIs like us want too - sharing of the proceeds of asset divestments, higher% of recurring earnings (Market tend to value "stable earnings" over "lumpy earnings"), paying down debt etc...

I also fully agree that RNAV is a good gauge to measure the value of a company. But as an investor, I have moved on from focusing on "measurement of value" to "realization of value".

[ghchua]

Hi weijian,

Not every asset heavy company have the intention to go asset light, and even if they do have the intention, you have to understand that do they have the reputation or track record to attract funds to build onto those asset light platforms like Keppel Limited and manage them for recurring income?

After all, after you have realized those assets, you have to find ways to replace those lost income. Otherwise, the company will just becomes smaller and smaller. Some do ride on partnerships and JVs to build those platforms, but it comes at a "price" as profits had to be shared. Yes, it is easy to talk about being asset light, but practically, it takes time to build up experience in scaling up and running asset light platforms. The learning curve might be steep, especially for asset heavy companies which just own assets and not into running and managing them.

[specuvestor]

Post dot com there was an asset light trend so as to improve ROE. Keppel sold their SPC at the worse possible time (like NOL) before oil rebounded big time. The CEO was reported upset by succumbing to shareholders' pressure

Then later these companies realise they lose control of the assets and their ability to remain in the premise which might lose footfall or revenue or convenience etc.

Asset light has to be purposeful and strategically reduce those assets that is non strategic and drag on asset allocation. To be asset light on operational asset is just pushing numbers on paper.

[EnSabahNur]

Private credit isn't new, but just hasn't been done much at scale in the local content I suppose - since a lot of these "mezzanine loans" eventually end up with the creditors having to enforce their rights via the court process.

It is possible they are following the herd here (nothing explicitly wrong with that).

Battling climate change requires large sums of investment

https://on.ft.com/44yoJBl

I think asset managers are trying to capitalise on that. I guess Keppel may not be different? 

https://www.lgim.com/landg-assets/lgim/_...sition.pdf

[weijian]

Post dot com there was an asset light trend so as to improve ROE. Keppel sold their SPC at the worse possible time (like NOL) before oil rebounded big time. The CEO was reported upset by succumbing to shareholders' pressure

Then later these companies realise they lose control of the assets and their ability to remain in the premise which might lose footfall or revenue or convenience etc.

Asset light has to be purposeful and strategically reduce those assets that is non strategic and drag on asset allocation. To be asset light on operational asset is just pushing numbers on paper.

hi specuvestor,

If the asset is freehold, one could always sell 99 year rights, and the 4rd generation could reclaim the asset!

I think our asset managers are already pretty well-educated in business school 101 on those case studies of losing strategic assets/capabilities.

A lot of strategic assets can still be under 100% control, despite owning much less than 50% of it. It is all about the "structure", isn't it? When the time is right, you could divest it to your listed Trust, where your guy can only removed with >75% votes. Alternatively, you could do it Mandarin Oriental-style by selling one of your hotels to your sibling, with zero chances of losing the management contract.

Next would be the partner of choice. As ghchua has aptly mentioned - operational and AUM capabilities at scale, are generally scarce. The other side of the relationship is money managers. So managers with operational and AUM capabilities at scale, have a slight "advantage" looking for money managers which is in theory, unlimited due to the printing press. Off my head in recent times, I can think of 2 good examples - (1) Centurion selling their msia worker dorm to Msia SWF and (2) Capitaland Investment selling a Beijing office tower to AIA Life Assurance.

And finally, platform economics have made many assets less strategic than it originally would have been. Folks like Marriot or Hilton can sell any hotel that they want, and there is a good chance that the buyers will keep the brands on their newly acquired assets - These platforms' booking, room rates algorithms and rewards system are considerably irreplaceable.

[specuvestor]

Hi Weijian

Just to say that business 101 probably already existed in post dot com as well as pre-dot com

Yes it depends on your business model rather than just follow the crowds to do asset light and lose competitive advantage because of pushing numbers on paper. We are also looking at how Sabana REIT as a first test case of how to defend an iron rice bowl of recurring income

Recent years US also learnt that they need hard assets on shore including rare earth, made in the US of A production or foundries. There is value in controlling hard assets and not just a stamp of your name on the asset. It becomes more evident over time rather than better ratios in next year's ROE. Incidentally Apple understands this and has certain strict control over the procurement or manufacturing process including their semicon, even though they are subcontracted out.

PS I forgot if URA banned the sale of 99 years on FH land or if that only applies to developers?

[weijian]

Platforms are great businesses and in the current parlance, we define a "platform" as an intermediary between 3rd party supply and demand. Well known examples include Shopee or Grab. So I am not exactly sure when CEO Loh refers KOM an offshore O&G builder OR its infrastructure division (energy, urban redevelopment) as a "platform". Aermont might be classified as a platform if we regard the GP as the intermediary between a LP and asset seller.

How many legs does a dog have if you call his tail a leg?

Address by Mr Loh Chin Hua, CEO of Keppel Ltd. FIRST HALF ENDED 30 JUNE 2024

This brings us to over S$5.6 billion in asset monetisation announced since October 2020, not including the divestment of platforms such as Keppel Offshore & Marine

We are pleased to have Aermont onboard as our European real estate platform, following the completion of our acquisition of an initial 50% stake in April this year.

In our Operating Platform, Infrastructure continues to be an exciting space as we capture growth opportunities amidst the rapidly evolving energy transition landscape.

Keppel Ltd 1H24 Mgt speech:
https://links.sgx.com/FileOpen/3.%20Kepp...eID=813828