Asian Stock Focus: Keppel Corp A Play On Sale Of Assets
June 19, 2001
Dow Jones Newswires
By SHEN HONG
Of DOW JONES NEWSWIRES
SINGAPORE -- Justifying its existence is probably the most challenging task facing Singapore's Keppel Corp. (P.KEP) at the moment.
The government-linked conglomerate is again under the spotlight after putting two of its key assets on sale, renewing hopes for a much-anticipated internal restructuring, analysts and fund managers say.
But until the group gets a clear idea about how to transform itself into a focused company from an investment holding firm, investors will treat it as a speculation-driven stock in the short term and will remain disinterested in its long-term prospects, market experts say.
The stock has undergone a sharp rally since April amid speculation that the group may implement drastic restructuring and may eventually be privatized by the government.
Shares of Keppel Corp. reached a seven-month intraday high of S$3.76 (US$1=S$1.8158) on June 14, after the group's banking unit Keppel Capital Holdings Ltd. (D.KCA) confirmed it's in talks with United Overseas Bank Ltd. (P.UOB), following an earlier unsolicited offer by Oversea-Chinese Banking Corp. (P.OCB) to buy the unit for S$4.8 billion.
Keppel Corp. shares were down 1.1% at S$3.56 at the 0430 GMT midday trading break Tuesday.
Prior to the proposed sale of Keppel Capital, shareholders of MobileOne Asia Pte. Ltd. said they intend to sell off Singapore's second-largest mobile phone operator.
Malaysia's Maxis Communications Bhd. and Regional Wireless Co., a 60:40 joint venture between Telstra Corp. (TLS) of Australia and Hong Kong's Pacific Century CyberWorks Ltd. (PCW) are the two bidders for M1.
Keppel Telecommunications & Transportation Ltd. (P.KTT), another unit of the Keppel group, owns 35% of M1.
Also in the pipeline for Keppel Corp.'s anticipated restructuring process is a possible merger between Keppel FELS Engergy & Infrastructure Ltd. (P.KEI) and Keppel Hitachi Zosen Ltd. (P.KHZ), the group's marine-related assets.
As Keppel Corp. "has been doing much soul-searching to seek a clear direction as a company," "it is likely we will see more changes within the group soon," says Ann Lim, an analyst at Dawai Institute of Research, who rates the stock as a three-month buy and a 12-month neutral.
Analysts and fund managers say the stock is a "trading buy" in the near term amid hopes for the restructuring, giving it a target price between S$4.00 and S$4.62.
Two Possibilities For Restructuring
If Keppel Corp. nails down a sound restructuring plan this year and finds a new "sustainable core business," "it will be pretty good for them," says Daiwa's Lim.
Otherwise, delayed restructuring and a lack of business focus will continue to disappoint investors, says Foo Jou Min, an analyst at SG Securities.
Keppel Corp.'s executive chairman Lim Chee Onn said in February that he agrees that the group doesn't have as yet "an optimal structure" in terms of asset size and capital utilization.
It's clear that "more needs to be done and we shall do so," Lim said.
Finding a new business model is crucial to Keppel Corp.'s future because the loss of Keppel Capital and M1 will simply leave the group with little to boast of in terms of earnings generation, analysts say.
Keppel Capital accounted for about 41% of Keppel Corp.'s total earnings in 2000, according to Koh Bee Ann, an analyst at Netresearch-Asia who recommends a hold on the stock for the short and long term.
M1 contributed 85% of Keppel T&T's total pretax profit in 2000.
The sale of Keppel Capital "would render a significant drop in (Keppel) group's earnings, which will be hard to replace," says Netresearch-Asia's Koh.
Analysts say they expect Keppel Corp. to use part of the proceeds from selling Keppel Capital and M1 to buy a new core business.
Daiwa's Lim says Keppel Corp. may consider two possibilities in this respect: to become a property developer by delisting Keppel Land Ltd. (P.KLD) and acquiring more property assets, or to become an energy and power play through existing and future operations in the desalination, incineration and power sector.
Keppel FELS, which owns 77% of Singapore Petroleum Co. (P.SPC), has ambitions in the energy, power and incineration industries, analysts say.
But some analysts say it may be a bit too late for Keppel Corp. to focus on industries such as energy and utilities, as another Singapore conglomerate SembCorp Industries Ltd. (P.SEC) is way ahead in such areas and will enjoy the first-mover advantage.
In contrast to Keppel Corp., SembCorp's promising unlisted utilities division is what makes the parent an attractive conglomerate, analysts say.
Some market watchers say instead of providing the conglomerate with a new core business, it seems more likely that the government will simply privatize Keppel group as the cost of doing so looks cheap at the moment.
As of March 30, Temasek Holdings Pte. Ltd., held a 32.2% stake in Keppel Corp., making it the company's single largest shareholder. Temasek Holdings is the Singapore government's investment arm.
"What's the point of having a conglomerate with so many diversified activities without a focus? It jars with the government's overall plan," says a senior fund manager at a major local bank.
But there will be "a lot of persuasion to do," with Keppel Corp.'s management, who have spent years building the group, says the fund manager.
Despite the recent rally, Keppel Corp. remains a cheap stock, "if you go along with the privatization story," the fund manager adds.
The stock has a target price of S$4.50 to S$5.00 if privatization takes place in the next 12 months, the fund manager says.
-By Shen Hong; Dow Jones Newswires; 65-421-4822; hong.shen@dowjones.com
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