Keppel – 1H26 earnings review; dividends on track
🌪 $Keppel(BN4.SI)$ shares have had a turbulent week, with recent volatility first arising on 28 July when its shares rose 3.3% after the company announced plans to monetise its legacy oil rigs
The next day, its share price climbed further to close at $12, after Keppel said it surpassed its year-end funds under management target of $100 billion ahead of schedule
In the following three days after, the shares tumbled 6.6% to close at $11.21 after its 1H26 earnings release on 30 July which showed a 59% drop from the previous year, driven by losses in its legacy rigs and real estate
The earnings disappointment was compounded by Dow Jones reports that Morningstar had flagged the stock as appearing overvalued and that Keppel’s transformation story may be overly priced in
✍Macquarie Research (MQ) published their opinion about Keppel’s results and legacy rigs post the company’s post-earnings briefing in a report on 31 July
Read more for the full article as well as important disclaimers:
Key Points
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MQ’s review of Keppel (KEP) 1H26 earnings shows that their base and special dividend estimates remain on track.
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The legacy rig issues appear to be mostly behind KEP; MQ thinks further impairments are unlikely.
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Maintains Outperform, with a lower Sum-of-the-Parts-based 12-month target price of S$12.87 (prev: S$13.16).
Post briefing, MQ updates their clean profit after tax and minority interests (PATMI) to S$390 million (+3% year on year).
MQ’s key takeaways from the briefing:
On track with monetisation
Completed and realised monetisation was S$560 million. Including the expected S$611 milloin cash from sale of the six rigs, MQ estimates that 6 to 9 cents of special dividend to be covered. MQ estimates another S$300 million of divestments needed at the minimum to achieve their target of 11 cent special dividend, which KEP appears confident to meet.
Infrastructure EBITDA appears stable
KEP clarified that the S$405 million earnings before interest, tax, depreciation and amortisation (EBITDA) stated in 1H25 included contribution from sponsor stakes and co-investments and is thus not a like for like figure. On that, MQ estimates 1H26 EBITDA to be up 7 to 8% YoY.
Annualised EBITDA appears on track to reach at least S$800 million, underpinning MQ’s 34 cent base dividend payout assumption. KEP does not expect further impact from replacement gas at this juncture.
Legacy rigs: further impairments seem unlikely
The key surprise in this result was the wider-than-expected loss from the legacy rigs. The S$275 million loss can be broken down to: S$165 million net impairment loss for all 13 rigs, around S$28 million expected credit loss on KrisEnergy receivables and the remaining c.S$85 million related to interest cost on loans drawn down for the rigs. MQ notes that the Sete Brasil rigs (DRU1 and 2) were fully written to zero.
These were the most problematic ones, and MQ thinks further write-downs are unlikely.MQ maintains their Outperform rating: Overall, KEP appears on track to deliver on dividend estimates.
Earnings changes
FY2026-2028 earnings per share reduced by 11% / 15% /14%.
Valuation
MQ lowers their Sum-of-the-Parts-based 12-month target price to S$12.87 (previously: S$13.16).
Catalysts
a) Higher dividend payouts, b) faster-than-expected growth in funds under management.
Note: Macquarie Research is independent from the Warrants business, what the Macquarie Warrants desks quote from Macquarie Research may not reflect the complete analysis of Macquarie Research on the relevant company over time.
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Macquarie has a trending Keppel call warrant $KeppelMBeCW261230(94BW.SI)$ which costs $0.068 this morning as of 906AM while Keppel shares trade at $11.30. The warrant will move in the same direction as Keppel shares but at approximately 5.8 times more, based on its effective gearing level of 5.8x as of 906AM today.
For example, given Keppel’s 6.6% drop since 29 July (as of yesterday’s close), 94BW has also dropped five times more i.e. 32.6% to yesterday’s close to $0.064.
Given Keppel’s 0.9% rebound to $11.31 this morning, 94BW is up 4.7% to $0.067 (all prices as of 906AM).
The warrant can be traded on an investor’s brokerage account just like shares, and does not come with margin calls. Those bullish on Keppel shares in the short-term may therefore wish to consider using call warrant 94BW.
There is no put warrant available over Keppel.
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