With Mr. Loh Chin Hua, CEO of Keppel Corporation Ltd
As a shareholder, I attended Keppel Corporation’s Annual General Meeting (AGM).
It was held at Raffles City Convention Centre. I was excited to attend it because it would be interesting to see the facial expressions and the management’s ways of handling the questions that were put forth by the shareholders- especially in a volatile and uncertain times such as what we are having now.
It was a thoroughly exciting and enjoyable experience.
The aim of an AGM is always to vote on the resolutions that the directors have proposed and answers questions that the shareholders have.
Upon The Start of The AGM, One of The Shareholders Asked The Management to Consider In The Future to:
- Look at Singapore Exchange (SGX) timetable so that Keppel Corporation’s AGM would not clash with others (that day it clashes with Sembcorp Marine’s AGM).
- Give shareholders more time to look through the Annual report by having the AGM at a later time.
- Be patient during AGM and gives the shareholders as much time as possible to ask questions.
Dr. Lee Boon Yang, Chairman of Keppel Corporation said that due to the limited window of time to conduct the AGM as well as the many companies that are listed on SGX, clashes are bound to happen.
To be fair, they made it a point to release the 2016 Quarter 1 result before this AGM. This is so that shareholders would have the latest result by Keppel following 2015’s performance and they would be able to address it in today’s AGM.
They assured us that they would be patient in answering the questions that we may have during the AGM- I am pleased to say that they have kept their word.
There were 12 resolutions that were proposed to be passed at the AGM- and all was eventually passed. If you would like to see the details of the 12 resolutions, do check their official website out.
The aim of me writing this article is to provide my key takeaways from 2016’s AGM.
Here Are My Key Takeaways:
With Regards to The Sete Brasil Scandal’s Exposure
The Chairman, Dr. Lee Boon Yang explained that the contractual agreements are complicated. It is a combination of down payment as well as progressive payments.
They already have contingency plans in place- in the case of a full default on the amount that is still owed by Sete Brasil.
In the beginning, the contract was for 6 rigs costing $827 million each with a total of about $5 Billion. All the rigs are in different stages of completions and payments is made on a progressive level.
As of November 2014, Sete Brasil have stopped making payments to Keppel and one of the substantially completed rigs are still in their yards- they will not resume production until Sete Brazil resumed payments.
The provision of $230 million that they made is the amount they deemed as suitable for this scenario- and the auditor of the company has deemed that the amount is appropriate as well.
Keppel Multi-Business Strategy Is Paying Off
Now, it is all about their property sector.
I raised a question about their focus on their property sector and on whether they would want to focus more on recurring income in the future.
Mr. Loh Chin Hua, CEO of Keppel Corporation answered. He said that they would have such focus for the future because when they have more recurring income, the quality of earnings are higher and they would have more confidence to venture on more projects knowing the stability of their earnings.
Having said that, he said that currently they are looking at recurring income from the group point of view- which stands at 25-26%- instead of property sector point of view.
He is confident of the ability of Keppel to develop land and add value to the land- especially in emerging economies such as Vietnam. He shared that in Vietnam, they are developing pieces of land in Ho Chi Min City- which is like the central business district area of Vietnam.
These will all be a long-term investment akin to the planting of seeds- which he felt will pay off in the future- like how Keppel Bay Investment had paid off.
The Privatisation of Keppel Land Has A Larger Strategic Motive
That is to be able to simplify the corporate structure and during certain opportunistic times, deploy capital easily into the segment of the business that is able to give the highest return on capital.
Last year, they paid $3 billion to increase their Keppel Land stake from 54% to 99.3%. In this transaction, they incurred an interest cost of $15 million and with the additional share they received, it added into the group profit of $250 million last year.
They Are NOT Merging With Sembcorp Marine
They Acknowledged The Impact That The Low Oil Price Environment Brings Severe Consequences To Their Offshore and Marine sector
Having said that, the Chairman of Keppel, Dr. Lee Boon Yang believes that because oil reserve is being drawn now, in the future, there would be less supply and oil price would stabilize at a more sustainable level.
Even after the oil price stabilizes, it would take some time for the demand in offshore and marine segment to recover. It is important to be realistic and explore other opportunities.
Right now, their offshore and marine sector is focusing on Specialized Vessels, Ship Repairs and Floating Liquified Natural Gas (FLNG).
Increased Competition From China Oil Rigs Companies
The competition has taken a toll on Keppel. This can be seen from the fact that their Return On Equity is dropping for the past few years.
Back in the 2005 era, more customers would pay in advance to fund projects but right now, Keppel would provide the borrowings of some fund to the customers to fund their projects- this resulted in a large increase in the working capital.
Keppel Strives to Pay 40-50% of Their Net Profit as Dividends
This is to balance the needs of shareholders as well as provide growth for the company.
In conclusion
I believe that Keppel Corporation is in a good position to ride through the current economic crisis.
But, it will take years for investors to see the fruits of their investment- because businesses do not recover overnight- it takes daily effort and a capable management to maneuver and take advantage of opportunities as it comes.
I think Keppel is in a good position to do just that- with their multi-business model advantage.
Disclosure: I am long on BN4. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Important: Please read my disclaimer.
Further Reading:
