Keppel Corp Retail Shareholders Briefing 2018

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Keppel Corp held a retail shareholders briefing in collaboration with SIAS at the SGX Centre yesterday. It’s the 2nd year this briefing was held and it presents a rare chance to interact with the C suite, with CEO Loh Chin Hua and CFO Chan Hon Chew in attendance. I joined a predominantly Merdeka/Pioneer Generation audience to find out more.

Presentation slides used at the meeting can be found here.

Presentation

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As previously described in my piece on Tianjin Eco City, Keppel has embarked on a strategy to be the one stop shop for sustainable urbanisation solutions. What this means is trying integrate the 4 disparate divisions into providing a single proposal for mega projects like smart cities in other countries. This has been part of Keppel’s business for the longest time with the Sino-Singapore Suzhou Industrial Park and Tianjin Eco City, just that they are now actively pursuing this as a future business focus.

The presentations by the CEO and CFO didn’t yield anything very different from my previous understanding of the business as mentioned in my Tianjin Eco City article.

Q&A

Questions were mostly answered by CEO Loh. Here’s a summary of topics asked that I felt was more informative:

1) Rationale for recently taking a 50% stake in Watermark Retirement Communities

The stake cost about $80 million and it was identified as a urbanisation trend that Keppel wanted to pursue as part of its sustainable urbanisation strategy. Watermark adopts a asset light strategy, where they are operators but not owners of Retirement Communities. This allows for rapid expansion through the use of others’ capital and ties in with the Keppel Capital platform. This is very much like the hospitality industry that I’m part of.

The ultimate aim is to bring this concept of retirement living to Asia, with potential countries like Singapore, China and Australia mentioned.

2) Upcoming Keppel Marina East Desalination Plant – Given Hyflux’s Tuas Spring woes, how is this project better?

Keppel was conservative when bidding for the project, the project is that currently on schedule and on budget. They are confident that the water prices negotiated with the Government as part of the tender process is set such that the plant is able to turn a profit.

3) Given the recent property cooling measures enacted by the SG Government and the ongoing rumblings of trade war between the US and China, how do you feel the company will be affected?

Sentiment will obviously be affected. That said, the company is not big in the SG residential market. Also the company’s land bank in Singapore and in China is relatively old (70% of China land bank is >7 years old), with a low resulting cost basis. This enables a higher likelihood of profitability when developed. Lastly, their land bank does not have deadlines for development, so they have the option to develop at a more favourable time if need be.

4) Keppel-KBS REIT – Co-sponsor KBS Realty is reported considering listing another US REIT in Singapore. As reliance is on KBS to bring deals to the REIT, do you have any concerns or comments on this news?

We exercise tight control by we providing the CFO for the REIT, but we will continue to work with our partners for the best of the REIT. (So a non answer haha)

5) Rationale for recent Keppel DC REIT divestment

The portion divested related to the portion owned by Keppel’s subsidiaries. It was decided that it was better to recycle the capital into their core business projects.

Summary

Staying on top your investments is a must. Attending such investor relations events can fast track your knowledge of the company you own through learning from management and from your fellow investors. I certainly learnt a lot.

Happy Hunting,
KK

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Scuttlebutt Report: Tianjin Eco City Visit

Regular followers of my portfolio would know that I am vested in Keppel Corp since the oil crash of 2015. I have divested some this year, but it still remains a part of my portfolio. The general perception of Keppel Corp is that it is mainly a company that constructs oil rigs and is highly correlated to the fate of the oil industry. Less is talked about its property or infrastructure division. And for good reason, as traditionally it’s a main driver of net profit.

Revenue breakdown

Net Profit breakdown

Source: Keppel Corporation Annual Report 2017

With the decline in O&M profits, Property and infrastructure will need to pick up the slack in the meantime.

Having attended this year’s AGM and read the annual report, Board Chairman Lee Boon Yang and CEO Loh Chin Hua seemed to signal a move towards more diversified streams of revenue. CEO Loh even mentioned that he hoped that the company’s shares will be “re-rated” given this new approach. This is evident in the theme of this year’s Annual Report: Solutions for Sustainable Urbanisation

Essentially, the direction revolves around Keppel Urban Solutions, the platform launched in 2017 to bring together Keppel’s various capabilities in property and infrastructure, marrying it with internal and external funds (through Keppel Capital) to design and manage smart sustainable cities of the future. The unwitting poster child of this approach is the Sino-Singapore Tianjin Eco City (SSTEC), a city designed and built from scratch on non-arable land as a collaboration between the Singapore and China governments, with Keppel Corp playing the leadership role in the Singapore half of the joint venture.

With Keppel Corp securing another project to develop Saigon Sports City in Ho Chi Minh City, coupled with the prospect of spending 2 weeks in Tianjin (which is not known as a tourist destination) for a work trip, it seemed like a productive use of my time to check out SSTEC to see if it is viable.

Overview

Tianjin map - with annotations

Above is a map of Tianjin municipality, to give you a rough idea of where the significant locations of Tianjin are located. Tianjin New Binhai Area is a Special Economic Zone intended to replicate the development seen in Shanghai Pudong and Shenzhen. The majority of the New Binhai area appears to be for industrial use at the moment, with some MNCs setting up shop here. The area’s Yujiapu financial district is still under construction. SSTEC is a sub-district of the New Binhai area.

SSTEC is a roughly 1 hour drive from the downtown area and 40 minute drive from the airport. There are roughly 80,000 people living in the city currently according to statistics.

The Journey

The journey by car from the Tianjin downtown area (where I was staying) took over 1 hour. Here are some pictures of the road to SSTEC to give you an idea of the surroundings:

The City

This aerial shot will help you understand the scale of the project:

Tianjin Eco City - Aerial view

Source: Tianjin Eco City website

Here are some street level shots I took:

 

As you can see, the vast majority of the buildings up are for residential use. There are some amenities already up like schools and neighbourhood malls. The city was not really bustling with activity at the time (early afternoon), probably because the people living there are at work in surrounding industrial district. I visited some of the local showrooms to get a better idea of the future developments of the city. Here’s the showroom for Shimao Property, a China property developer listed in Shanghai, which accounts for most of the residential properties you see in the earlier pictures:

Shimao Map

Another representation of where SSTEC is located

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I also wondered around the science and technology district and came across a familiar logo:

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Keppel Land also had a showroom for some residential developments they have in the area. According the sales persons, they are priced at RMB1,500 per sqm, set to complete in 2020 and with only 15-20% of units remaining available.

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As seen in the map shown, Keppel’s residential units are pretty well located with nearby amenities and close to the bridge that connects to the surround industrial developments and the expressway to the city. There is also a lake district nearby.

I left the city late afternoon, flanked by flags and wind turbines.

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My thoughts

Singapore is renown around the world as a garden city, to see that same vision realised in a foreign country under our guidance brings me a deep sense of pride as a Singaporean, just like how we managed to hold the Trump-Kim summit. From a business standpoint, it makes sense to sell that vision and expertise especially to developing countries who wish to do it right and not succumb to excessive pollution. Keppel is uniquely positioned to be able to execute with its track record and in house property and infrastructure divisions.

As for SSTEC, it is currently situated in a pretty bad location with the CBD and Airport about 1 hour away. There are also limited things you can do nearby. However, with further development on its way with more industries setting up shop in the Binhai area and the eventual completion of the Yujiapu financial district, the land bank and developments Keppel has in SSTEC will appreciate over time.

Overall, I like the direction Keppel is taking and will look closely at the development of SSTEC, Saigon Sports City and other potential future deals that could represent significant upside.

Bonus

Here are some of my favourite photos of the Tianjin downtown area:

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Sunset on the Tianjin Eye

Happy Hunting,
KK

Disclosure: I’m invested in Keppel Corporation and this is not a sponsored post. The views here are my own
Disclaimer: The information presented does not constitute a call to buy or sell shares. It is for general information purposes only. Do your own due diligence before making a decision, friends.

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