Keppel Corporation (OTCPK:KPELF) Q4 2023 Earnings Conference Call January 31, 2024 9:00 PM ET
Company Participants
Loh Chin Hua – CEO
Kevin Chng – CFO
Christina Tan – CEO of Fund Management and Chief Investment Officer
Cindy Lim – CEO of Infrastructure
Lu-yi Lim – CEO of Real Estate
Manjot Singh Mann – CEO, M1
Conference Call Participants
Derek Tan – DBS
Joy Wong – HSBC
Mervin Song – JPMorgan
Siew Khee – CIMB
Dexter Wei – Bloomberg News
Operator
Good morning, ladies and gentlemen. Welcome to the Conference for Keppel Limited Second Half and Full Year Financial Results for 2023. We have on the panel this morning, from your left Mr. Manjot Singh Mann, CEO, M1; Mr. Lu-yi Lim, CEO of Real Estate; Ms. Christina Tan, CEO of Fund Management and Chief Investment Officer; Mr. Loh Chin Hua, CEO; Mr. Kevin Chng, CFO, and Ms. Cindy Lim, CEO of Infrastructure. Mr. Thomas Pang, CEO of Datacenters and Networks is not feeling well and will not be attending the session today.
We will begin the session with presentations by CEO Mr. Loh Chin Hua, Chang Hua and CFO Mr. Kevin Chng, followed by the question-and-answer session. Mr. Loh, please.
Loh Chin Hua
Thank you. Good morning, everyone. 2023 has been one of the most transformational years in Keppel’s history. Amidst the volatile global environment we took pivotal steps to transform Keppel, starting with the successful divestment of the offshore and marine business, which allows us to realize some S$9.4 billion in value overtime. We then unveiled the next phase of our vision 2030 transformation, shedding our conglomerate structure become a global asset shedding our conglomerate structure to become a global asset manager and operator.
This was followed by the proposed strategic acquisition of Aermont Capital, which we announced in November to propel our growth as an asset manager at a global scale. Reflecting Keppel’s new direction, we change our name with effect from January 1, 2024. Keppel Corporation Limited, to Keppel Ltd. marking a new chapter in our corporate journey.
Today, we are operating more efficiently as one horizontally integrated company, harnessing synergies across our three segments. We made good progress in the goals we set by third Q’23, we had already exceeded the upper bound of our three-year asset monetization target of S$3 billon to S$5 billion. Since October 2020, we’ve announced the monetization of about $5.4 billion of assets and release some S$4.1 billion in cash over this period, to reinvest for growth and reward shareholders.
Our transformation efforts have been recognized by the market and our investors. Against the challenging landscape, we achieve total shareholder returns are TSR of 49.3% for 2022 and 61.1% for 2023, far exceeding the TSR of the Straits Times index in both years. But we’re not done yet. We will continue to scale up our funds under management, grow recurring income and monetize our assets as we execute our vision 2030 strategy.
For the whole of 2023 we achieved a net profit of close to $4.1 billion more than quadruple that of financial year ‘22. This is the highest profit ever recorded by Keppel in our 55-year history. About S$3.3 billion of this was from gains achieved from successfully divesting the O&M business. Our return on equity was 37.9% for financial year ‘23 compared to 8.1% a year ago. Net Profit from continuing operations was S$996 million in financial year ‘23 19% higher than the 839 million in financial year ‘22. All segments were profitable, with sharply improve performance in our Infrastructure segment.
Including the accounting loss of 111 million from the distribution of capillary units to our shareholders in November 2023, net Profit from continuing operations was S$885 million in financial year ‘23 or 6% higher year-on-year. For financial year ’23 — sorry for second half ‘23, we delivered a robust net profit of S$551 million, up 36% from S$405 million in second half ‘22, excluding the discontinued Offshore and Marine Operations from both periods and DRS loss.
Including the DRS loss net profit for the second half of last year was S$440 million, a 9% increase year-on-year. As you can see, the composition of our profits is very different from what it was a few years ago, when the majority of our earnings were from the lumpy O&M order book business and the property trading business.
Keppel today is no longer a rig builder, not a property developer. We are global asset manager and operator with complimentary segments in infrastructure, real estate and connectivity, all contributing positively to the company’s earnings.
While earnings from real estate will lower year-on-year. The segment continued to perform creditably and contributed significantly to our net profit, despite challenging conditions in markets like China. On the bank of Keppel’s strong performance and reflecting our confidence in a company’s growth trajectory, the board of directors has proposed a final cash dividend of S$0.19 per share for financial year ‘23 which will be paid to shareholders on May 8, 2024. The final cash dividend is higher than last year’s final dividend of S$0.18 per share. Together with the interim cash dividend of S$0.15 per share paid in August 2023, shareholders will be receiving a total cash dividend of S$0.34 per share for the financial year 2023. This translates to a cash dividend yield of 4.7%, based on Keppel’s closing share price of S$7.16 last evening.
Including the distribution is in species of Sembcorp Marine shares and Keppel REIT units, our shareholders will be receiving total dividends amounting to about S$2.70 per Keppel share for the whole year 2023. As we press ahead with our growth plans, we continue to be prudent and nimble in capital management, keeping our costs of funds competitive, and de-risking our portfolio amidst a volatile landscape.
As at the end of 2023, our adjusted net debt to EBITDA remain at a healthy 4.6 times, about 66% of our borrowings were on fixed rates, with interest costs of 3.75% and with the tenure of about three years. We have managed our hedging well, with our cost of funds not rising significantly over the past few years, despite the high interest rate environment. In the three years from end-2020 to end-2023, our cost of funds increased by a moderate 150 bps compared to the three year swap rate, which rose significantly by about 240 bps over the same period.
As at the end of 2023, we maintain our cost of funds at a relatively small spread of about 110 bps over the three year swap rate of 2.64% cushioned by interest rate hedges. Last week, we also secured S$1 billion worth of sustainability-linked revolving credit facilities, which we can use for general corporate purposes, as well as the pursuit of business opportunities in the sustainability space.
We have also made good progress de-risking our investments. Asset Co has done well amidst growing demand for offshore drilling assets, and improving utilization and day rates. Asset Co has accumulated a cash balance of approximately S$950 million as at the end of ‘23, and is receiving active inquiries for its assets. Meanwhile, we remain watchful over our exposure in China.
Our Real Estate division has monetized over S$3 billion of assets in China since 2017, including S$94 million last year, and recognize total profits of more than S$1 billion. It has also repatriated more than S$5 billion of cash over the same period. Some of the unlock capital has been reallocated to pursue opportunities in different asset classes and countries, leveraging our asset-light model. Going forward, we will focus on accelerating the monetization of the vendor notes, as well as our residential land bank and inventories, which currently amount to some S$6.3 billion on our balance sheet.
Some of the proceeds from monetization will be invested in new growth areas. We will also become more asset-light and require less capital, some of which can be returned to shareholders. As we continue to improve Keppel’s performance, this will bring us closer to our 15% ROE target, which we are confident of achieving well before 2030.
Reflecting Keppel’s strategy, and I’ll shift away from lumpy EPC and development profits, our recurring income from continuing operations rose 54% year on year, to S$773 million in financial year ‘23, making up 88% of our net profit compared to 60% a year earlier.
The strong improvement was bolstered by higher operating income from our Infrastructure division engine which continues to pursue opportunities in renewables clean energies and decarbonization solutions, whilst expanding our pipeline of long-term contracts that provide stable income with good earnings visibility.
One such example was the recent GlobalFoundries power purchase agreement, which we’ll see capital providing electricity to provide their Singapore operations for more than 15 years. As at the end of 2023, about 60% of our generation capacity was contracted for three years and above. In 2023, our private funds and listed trust generated a total of S$283 million in asset management fees up by about 6% year-on-year. We raised a total of about S$2.3 billion in equity, and completed S$2.5 billion worth of acquisitions and S$500 million of divestments in the same period.
Now withstanding the challenging fundraising environment, we continue to make good progress on our fund initiatives, achieving closings of $575 million for the Keppel Core infrastructure fund, and RMB1.6 billion for our China-focused sustainable urban renewal program.
We also acquired the remaining 50% stake in Keppel Credit Fund Management, formally Pierfront Capital, bringing our interest in the platform to 100%. Our FUM grew to S$55 billion as at the end of 2023, compared to S$50 billion at the end of 2022. When Phase 1 of the acquisition of Aermont Capital is completed later this month, or this year, our FUM would grow to about S$79 billion, bringing us close to 80% of our interim target of S$100 billion by 2026. We remain laser-focused on achieving our FUM target of S$200 billion by the end of 2030.
Infrastructure is expected to be one of the fastest growing asset classes in the years ahead, supported by global trends, such as the energy transition and push for decarbonization, as well as rising demand for digital connectivity. We’ve seen recent M&A transactions involving major global asset managers, as they sought to expand in the infrastructure space.
Keppel is in an enviable position as we are already an establish infrastructure asset manager and operator with strong track record. We also have deep domain knowledge and operating capabilities in multiple asset classes, allowing us to provide more fun products and better value propositions to our LPs.
In 2024, we will continue to expand our fund offerings, as well as pursue a deal flow pipeline of over S$14 billion, majority of which are in the infrastructure and connectivity spaces.
Looking ahead, as inflation eases and interest rates start to stabilize, we expect fundraising and deal making activities to increase later this year. Nevertheless, investors are expected to remain highly selective of invest investment strategies and asset classes with a preference for sectors underpinned by resilient macro trends, such as the energy transition, climate, action, and digitalization, all of which are driving demand for Keppel’s solutions.
This include the Keppel Sakra Cogen Plant, Singapore’s most advanced and first hydrogen-ready power plan, our sustainable urban renewal initiatives as well as green datacenter solutions, and the by Bifrost Subsea Cable System that we are developing.
As we expand our business, we are looking out not just for good assets, but also top talent and strong capabilities that can add value to the company. The proposed acquisition of Aermont, which is progressing well will give Keppel and immediate and strong foothold in Europe, significantly expanding our presence beyond Asia-Pacific, and also bolster our attractiveness to global LPs.
Keppel will also be able to widen our network of blue-chip LPs leveraging Aermont’s longstanding relay ships with its global clients. The senior team at Aermont with the extensive asset management track record and networks in Europe is a strong team that will add significant value to Keppel. Aermont will be capital’s European real estate platform, and both teams will work closely together to seize opportunities.
With value add from Keppel, we believe that Aermont’s FUM can grow by 2.5 times to approximately S$60 billion in 2030. Through the co-creation of European credit funds, datacenter funds, and various private investment vehicles, and potentially REITs.
To conclude, we have harnessed Keppel’s deep industrial roots to transform the company into a global asset manager and operator. Our strong investment track record, built up over 20 years, as well as our operating capabilities and domain knowledge in the key segments of infrastructure, real estate and connectivity, providing an unparalleled value proposition to the investors in our private funds REITs and trust.
Investors also find our active value adding approach to creating superior returns appealing. Keppel shareholders have benefited and will continue to benefit from this transformation. We have made significant progress over the years to adapt to the changing environment. Keppel today is run more efficiently as one company compared to what it used to be as a conglomerate, with a few diverse listed operating companies.
With Vision 2030, we’re executing One Business strategy and exploiting synergies amongst our three segments to create greater value for our end customers, our shareholders and our investors. Keppel’s earnings are now much 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.
I’m confident that Keppel is well positioned to write the next S-curve of quality sustainable growth. Our resilience with a focus on providing investment solutions and meeting basic needs, like clean power, green environment and connectivity helps us navigate a more complex world.
Our new CFO, Kevin Chng, will now take you through details of the company’s financial performance.
Kevin Chng
Thank you, CEO, and a very good morning to all. I shall now take you through Keppel’s financial performance. For financial year 2023 Keppel achieved a record net profit of S$4.07 billion significantly higher than the prior due to the recognition of disposal gain of approximately S$3.3 billion from the successful divestment of Keppel Offshore Marine now it’s KOM.
Excluding discontinued operations and the loss from distribution in specie of Keppel REIT units, DIS loss, net profit increased by 90% to S$996 million from S$839 million in financial year 2022. All segments were profitable with stronger year-on-year performance from infrastructure and connectivity. ROE was significantly higher at 37.9%.
Excluding the DIS loss, ROE from continuing operations improved to 9.3% as compared to 7.3% in financial year 2022 supported by higher net profit and low equity as a result of the distributions in specie of Seatrium shares and Keppel REIT units. Infrastructure was a top performer for financial year 2023, delivering net profits of almost S$700 million.
Contribution from the Real Estate segment remain resilient with S$426 million in net earnings despite challenging market conditions in China. Net Profit from Connectivity grew year-on-year and accounted for approximately 14% of the net profit from continuing operations. I will further elaborate on the performance of each segment later on.
Net gearing increased from 0.78 times as at the end of 2020 to 0.9 times. This was due to higher net debt as a result of net cash outflow from the divestment of KOM and lower equity arising from the two distributions in specie and cash dividends paid during the year. Adjusted net debt to EBITDA improved to 4.6 times from 5.1 times as at the end of 2022, mainly due to higher proportional increase in EBITDA as compared to increase in adjusted net debt.
Free cash outflow was S$384 million as compared to free cash outflow of S$408 million in the same period last year. This was mainly due to lower level of investments and capital expenditure, higher divestment process and dividend income, as well as advances from associated companies and joint ventures, partly offset by increase in working capital requirements.
In addition, as KOM had a net cash balance of S$968 million, the completion of the divestment resulted in a net cash outflow, partially offset by the receipt of S$500 million in cash consideration. Excluding the results of discontinued operations, net profit from continuing operations was S$885 million, with positive contributions from all income streams.
Underpinned by robust operating earnings from Infrastructure, recurring income, which comprises asset management net profit and operating income grew 54% to S$773 million from S$503 million a year ago. Valuation gains declined mainly due to lower valuation gains from investment properties. Development in EPC earnings was 14% higher year on year at S$178 million led by higher contributions from Singapore trading projects and Sino-Singapore Tianjin Eco-City. Excluding the DIS loss gains from capital recycling increased by S$145 million, primarily due to completion of several asset monetization by real estate and connectivity segments.
Net loss from corporate activities was S$256 million as compared to S$20 million in financial year 2022, mainly due to impact from classification of interest expense associated with vendor notes and lower fair value gains from investments.
Moving on to segmental performance. The Infrastructure segment achieved a net profit of S$699 million in financial year 2020, 135% higher than financial year 2022 of S$297 million. This was led by strong operating income growth of S$320 million driven by higher net generation and margins from the integrated power business, as well as special distribution from Keppel Infrastructure Trust KIT it partly offset by lower share our results from an associated company following a dilution of interest in fourth quarter of 2022.
Notably, as at the end of 2023, about 60% of our power generation capacity was contracted for three years or more. While our long-term supply and services backlog reached S$4.3 billion, bolstered by S$1.6 billion of energy as a service contracts secured during the year. Our expanding pipeline of long-term infrastructure contracts will continue to bolster Keppel’s recurring income growth.
Asset Management net profit was 28% higher year-on-year, mainly from higher management fees due to a change in the fee structure that took effect second half of 2022 and better performance by KIT. This was partly offset by lower acquisition fees recognized during the year. The segment also recognized fair value gains from its sponsor stakes in infrastructure private funds as compared to losses in the prior year. As CEO mentioned, infrastructure is expected to be one of the fastest growing asset class, and we’re in a strong position to build on the momentum to capture the opportunities as an established infrastructure asset manager and operator.
Despite challenging market conditions, listed delivered creditable performance, continuing to record fair value gains from investment properties, achieving higher dividend profits, as well as higher gains from capital recycling in 2023. Excluding the DIS loss net profit for the year was S$426 million, which was 8% lower than financial year 2022.
Asset Management net profit was lower year on year mainly due to higher overheads to drive growth. The decline in operating income was a result of lower contributions from our sponsor stakes and co-investments, higher net interest expense and costs incurred for new business engines. Last year’s operating income benefited from a reversal of cost provisions relating to a commercial project in China.
While fair value gains will lower year on year development profits rose 11% to S$197 million on the back of higher contributions from Singapore trading projects and Sino-Singapore Tianjin Eco-City, which recognize profits from the sale of two land plots.
Amidst challenging conditions Real Estate segment also successfully completed monetization of seven assets across Vietnam, India, Philippines, Myanmar, China and Singapore, banking in total gains of S$105 million for the year.
As the Real Estate division continues its pivot to become more asset like, we will accelerate our focus on developing new growth engines and shoring up capabilities in areas such as sustainable urban renewal and senior living, which will generate more fee based recurring income.
Net profit from the Connectivity segment of S$127 million was 30% higher than financial year 2022 of S$98 million, mainly due to higher recurring income and gains from capital recycling. The operating income increase was mainly due to higher earnings from M1 supported by its growing mobile services and enterprise revenues, as well as lower losses from the logistics business following divestment of the Southeast Asian operations in mid-2022. The segment also recorded gains from disposal of non-core assets and from the dilution of interest in Bifrost Subsea Cable Project with the onboarding of co-investors for our fiber pairs. These were partly offset by fair value loss on an investment, as well as lower fair value gains on datacenters.
Net loss from corporate activities was S$256 million as compared to S$20 million in financial year 2022. With the completion of the disposal of the Offshore Marine business in February 2023, the effects of the retain Seatrium shares and Asset Co vendor notes are reported under corporate activities. Since then, Keppel has recognized approximately S$151 million of interest income net of fair value changes on the vendor notes. As the vendor note is a financial instrument and as required by accounting standards, the notes receivables have to be fair valued at initial recognition or what we term as day one fair value. The difference between the fair value and the transacted price is deferred and amortized over the expected life of the notes.
During the year, about S$115 million amortization expense was recognized. The financing costs relating to the vendor notes are now reported under corporate activities following completion of the Asset Co transaction in February 2023. This will previously reported under discontinued operations in financial year 2022 hence explaining the difference in interest expense of financial 2023.
For the investments held at corporate level, lower fair value gains were recognized during the year partly offset by gains recorded on the retained Seatrium shares. Overheads were higher in financial year 2023, mainly due to transformation costs incurred. Prior comparatives also benefited from right back of certain provisions, which were no longer required.
With that we have come to the end of the presentation. And I shall hand the time back to CEO for the Q&A session. Thank you.
Question-and-Answer Session
A – Loh Chin Hua
Thank you, Kevin. So now we come to the Q&A session. We have a couple of analysts who have joined us physically. So maybe I start with any questions that those who are here might have. Yes, please. Maybe you got a — you have a mic. Maybe you just explain who you are first. Yeah.
Derek Tan
Hi, good morning, Chin Hua and team. Congrats on a spectacular set of results. I just wanted. I got three question. So my first question is, you set ourselves a very high base for during the fall. So just wondering, could you give us a sense in terms of growth, acquisition, some color divestments, what should we be expecting? Or do you have a divestment target for 2024?
My second question is on the dry powder for your funds right. I noticed that there’s about S$9 billion of embedded FUM. Could you share a bit more color where does this dry powder sit in and which kind of asset class?
And my last question is on your infrastructure operating earnings. I know it’s S$645 million. But just wondering whether could you give us some color, whether is it going to be sustainable for this year? That’s okay.
Loh Chin Hua
Thank you for the question. I will take the first question. And maybe I’ll get my colleagues to deal with the other two questions. So the first question is, well, we have been working really, really hard. The last few years, particularly transforming Keppel, it wasn’t done over a single year. And I mean, one of the big contributions from last year was the divestment gains from the sale of Q&M. And that took a number of years, but of course, it was accounted for last year.
I think, besides the gain, right, I think what is probably important to note, is that, yes, we have made, we’ve quadrupled the profits, and we have hit a record high for the group’s 55-year history. But what’s most important is that we have really transformed the group. I think, if you think back, even five or six years ago, the kind of earnings that you see, compared to what we have today, we have achieved, what we had — one of the key tenets of Vision 2030, which was that we want to move away from lumpy profits to recurring income and to be asset light.
So I think this is playing itself out very well. And you can see that from the results beyond the very good numbers that we have shown.
I think for this year, obviously, I don’t have another column to sell. But I think if you compare, which we have done looking at, continuing business, we have also done very well. So if you take out the DIS loss, last year’s numbers was also, very more than decent. In fact, it was quite good.
The Real Estate Group has contributed less. But given all the challenges that we have you can see that, we have also done very well there. Of course, infrastructure, I’ll let Cindy, answering the question for that part, talk more about it, but it’s been spectacular for us. And we do believe it is recurring. We’re working towards that.
So I think for this year, our goal will be to continue to press on. I think my colleagues are already aware, since we came back from the New Year, I have given very strong, I think we have to be fair with all, we’re all quite ambitious group. So it’s not just me, we do want to do even better, and a salary more. So I think this year would be quite interesting year. The external environment is quite challenging. But I think as I said in my speech, our business is in areas that are in demand, whether you’re looking at infrastructure, including our connectivity segments, including digitalization is growing well.
Real Estate side seems to be you know, some markets still finding a bottom but there are some markets where the deals are starting to look more interesting. And I’ll let Chris talk more about that. So we do expect to see more funds being raised, more investments to be made. So this would help us in several ways, we will get obviously more fees, but also we would expect to see our AUM grow as well.
And operating wise, I think we are set to do the best that we can. So last year was a very high point, but it is by no means the high watermark. I think we expect to do better in the years to come.
So I’ll stop there. Maybe I’ll ask Chris to address the second question. Then I’ll say something before I hand over to Cindy, on the third question.
Christina Tan
Thanks, Derek, for the question. I think this year 2024 will be a very exciting year for us. Because despite the volatile markets that we’re seeing, I think that’s where we also find good opportunities. We hear a lot of refinancing coming up. And think that’s where, with less, that’s available, I think that’s where — I think equity players will have a good time trying to find some dislocations in the market and enter the market.
Like we said, Actually, even last year, we have been very active looking at deals in a market, I think the team look at across victory and real billion of us and then we funnel through about S$14 billion of us that we’re more seriously considering. And we have been deep in negotiations with the various vendors. And some of the deals are actually close. Recently, you have heard of Enpal just closed by KIT, on the second day of New Year. And then we’re closing another deal soon, which will be announced.
So actually, I think the pace of investments will be much faster this year, in 2024. And with all the global geopolitical issues, and also, elections coming up, a lot of countries that have elections this year, we believe that actually the market, the government would be there to support a more benign market. Interest rates, people are expecting some tapering of lowering of interest rates, I think that will actually augur really well for investments.
So I think the three teams or three segments, whether they are in real estate, connectivity, or infrastructure, are actively working through some of the deals. And we are seeing that very interesting opportunities happening. And I think the difference is that Keppel besides being just investor, we have really deep operating capabilities. And that actually helps us in terms of extracting additional alpha values created, rather than just going through just financing structuring or engineering in that sense. So remained really excited about the CSR performance.
Loh Chin Hua
Yeah. Thanks, Chris. I maybe I just asked Cindy, you want to start first I will supplement. Please go ahead.
Cindy Lim
Sure. Happy New Year everyone. I think for the infrastructure operating division, we have always been very laser-focused on improving the quality and the resilience of our earnings. So it is beyond just technical capturing the market volatility, do pricing, but urge as to look at the past 12 quarters of transformation we have carried out in infrastructure operating division. So we have two integrated platforms there one being the power business, the other one being the decarbonization and sustainability solutions business.
To improve the quality and resilience of our power business, as you have heard from group CEO earlier, we have diligently contracted longer term strategy, power retail with very strategic customers. So 60% nearly 60% of our electricity portfolio contract is long-term beyond three years or more. Besides that, we are also very diligent in expanding our generation capacity. As you have heard, we are the first to market in terms of planting a 600-megawatt hydrogen-ready facility.
So this means that we are constantly improving our generation margin, not just at the back of electricity spread, but in terms of energy efficiency, number one, and number two in terms of future proofing our power business being ready to capture lower carbon energy demand in not just Singapore, but the region.
This is where you see us also pushing ahead in terms of developing the power interconnect for low-carbon electricity grid in ASEAN. And we are working hard in pushing the development of such grid which will not only benefit Keppel or Singapore, but it will benefit the region. As we all know, the more resilient is the region in terms of energy security and development, the more we can mitigate the volatility in Singapore. There’s one part.
Adding on the sustainability and the cap piece. As you have heard, we have actively secure long-term contract revenue not just on the energy efficiency portion, but also on the waste water portion. And the quality of this revenue to be converted and translated into earning in years to come will help improve the resilience of our earning because we have also actively diversified into geographies.
So we have pursued diligently in the past few quarters, geography where you see fundamental improvement in demand for sustainability solution. So diversification in terms of geography, diversification to enhance resilience and quality of the earnings. And we have decisively shifted away from EPC projects. So the lumpiness and the tough cliff and [Indiscernible] earning profile is behind us. Thank you.
Loh Chin Hua
Thanks, Cindy, I think you’ve covered it very well. I think just want to kind of just highlight a point not specific just to infrastructure, but just to kind of point out that the transformation at Keppel is not just a cosmetic one. You can see that, you know, the whole organization is transforming, including the businesses that we or the segments that we have, whether it is infrastructure, it is M1, or it is our real estate division. We are really looking at how to make ourselves relevant to the world and also how we can, all the different divisions can come together, so that we can be all the different segments can come together so that we can be a stronger contributor to Vision 2030. Thank you. Yes.
Joy Wong
Hi, Joy from HSBC. Thank you. Three questions for me. First of all on infrastructure, can you talk a little bit about the PPA, and your strategy around longer term contracts? How that could shift your profitability? And also on infrastructure, you’ve talked about energy as a service. When do you think we will be sort of mature this business will be mature enough for you to actually separately report versus your existing power business? So that’s one.
Second question on the farm management side. Would you still be looking out for platform deals, or you will be focusing on the first closing of EMR? And last one on China in particular, in terms of real estate. The fund is it onshore fund or offshore fund? And also just on China assets, do you see risk of impairments or valuation losses going forward? Thank you.
Loh Chin Hua
Thank you. Can I ask Cindy, to answer the first question please?
Cindy Lim
On the power purchase agreement, long term power purchase agreement site with GlobalFoundries, fundamentally, number one, we don’t take the fuel volatility risk, that is very important. In fact, currently, 100% of our portfolio is either fully hedged or indexed pass through. I think this is the discipline, our commercial discipline when it comes to securing contracts.
More importantly, is also the strategic partnership with our client, not just GlobalFoundries, even across the rest of our infra operating division, whether it is on the decarb or sustainability solution, we see ourselves as long term partner to our customers’ needs. So for large strategic customer, as well as emerging customer with the potential to grow, we want to be the solution provider for the energy requirements, decarb solution. So this kind of like does still very nicely to the second question you have on DIS. Even on the contrary, I don’t foresee us breaking down and reporting each of our pursuits on a standalone basis.
Increasingly, we will be converging towards being a one stop solution provider for the customer. So for example, even if it’s supply cooling, as a utility to our client, they will have demand for renewable for carbon services, including that of later on space and capital and alike. Thank you.
Loh Chin Hua
So this, what Cindy just said, just to kind of add on to that is that overtime, as we — I think your question is more on how this how you scale it up, right? So eventually, as we get to a right scale, there’s also opportunities for us to securitize some of these contracts. And that will then allow us to grow even faster.
Now, on your second question, on the weather that we’re looking at other platforms. Maybe just say this, I think the announcement of the proposed acquisition of Aermont has really kind of put us in a big leaks. People are now starting to take notice that a, that this group called Keppel. And Aermont is quite well regarded platform is, someone tells me it’s the last remaining independent real estate platform, management platform in Europe that’s worth buying. And so we’re very pleased that we are progressing with that.
We have also been approached now in since the announcement by various groups. But as I said, during the announcement for Aermont, it’s a very rare deal, where it kind of checks the box for both sides. So if I have a list of what I’m looking for, and Aermont has a list of what they are looking for. I think both of our lists will be, the boxes will all be checked.
So in other words, it’s not easy to find the right platform. So we are open to it. As we’ve said before, we are growing our organically, and we are wanting to grow organically, very strongly, very fast. You heard from Chris. But at the same time, we’re open to inorganic, but we have to find the right platform.
Maybe ask Chris to answer the next question.
Christina Tan
Hey, thanks, Joy. On the China fund itself, actually, the money came from outside of China. Yeah, but very strong support, because I think these two believe in China’s story, the long run. And I think they see that couple of quite a differentiated proposition. Because in terms of our capabilities, operating capabilities, creating sustainable urban renewal solutions, we are able to actually say fund it improve on our NOI. So like every time we say, every dollar you save on, NOI, using a cap rate of 4% increase S$25 in value. So if we save S$10 million actually create about S$250 million in value. So this is quite substantial.
So in terms of when you talk about even like China assets, whether there’s some impairment and all that, the truth is that I mean, the market is a bit stressed right now. So in terms of cap rates, they may have expanded. But in terms of our capabilities, because Keppel is quite unique, and coming up with solutions. So we are able to actually improve the leasing the NOI of the assets. And that in turn, actually you saw rebalances it a bit. So I guess that’s where I think the external investors finds that Keppel is quite the interesting differentiated manager compared to others.
Loh Chin Hua
I think maybe just to supplement there, if your question is relating to our own balance sheet. I think I’ve already pointed out that whilst China is still an important market for us, we have the risk significantly over the last few years. And most of our holdings there are in land bang there kind of historical costs. So even in today’s more challenging markets, we still see quite good headroom because the land banks that we have were accumulated quite a number of years ago. Okay, maybe next question. Yeah.
Mervin Song
Mervin from JPMorgan, congrats on the very strong results. Maybe we can go to Slide 26 in terms of split between the length of contracts. Is this a right, is it a good mix or do you expect to increase the proportion of contracts much longer duration?
Loh Chin Hua
That’s okay. Maybe I stop there, Cindy, you want to?
Cindy Lim
So, Singapore’s power market is fully liberalized as a mature market. And it’s very integrative to the upstream gas contract and also the downstream growth in demand and also the type of customer.
So when it comes to portfolio mix is not cast in stone. We’re very driven by a kind of contract and also timing and more importantly the kind of customer. So, key to note is our Sakra Cogen is under construction in a very healthy progress about 35% completion. So it will come commercial operation in early 2026. So from now to then we are also actively be managing or rebalancing our portfolio to make sure not only is the resilience there, but it will allow a bit of flexibility for us to capture any upside whilst protect the downside.
Mervin Song
My second question for Cindy, sorry, I’m not supposed to direct questions. This is the infrastructure business. Have we — the contract, re-contract everybody to the new market norms, or this will some legacy contracts, which are perhaps on a lower margin site still in place?
Loh Chin Hua
Maybe Cindy?
Cindy Lim
The traditional power market, usually you have spot, 6 months, 12 months, 24 months. In fact, as the innovation some years ago, people introduced 36 months. Then the power, the energy market, went through a bit of I would say more mature development. And the Gencos are very agile in responding to the changes in the market.
There is also regulatory intervention, as you have heard. I think, all in all, the legacy contracts would have dropped off by now. If you were to just look at when the depressed market were reservists the number of months that has lapse, right. So this will also mean at the onset of the energy crisis and volatility, retailers or the dealers who are diligent and sharp enough to capture the contracts would have benefited from it in this coming months.
Loh Chin Hua
Okay, maybe, if you don’t mind to wait. Just wait a second, I will give a chance to those that are waiting online. There are a couple of questions. I’ll come back to you.
Okay, this one is also. Okay, so this is a question from Paul Chew of Phillip Securities, will electricity generation margins in Singapore remain stable until 2026? When the new supply is turned on? I guess it’s referring to the first plant that we are delivering the Sakra project.
The next question is, is there an opportunity to enter a AI or GPU-only processing datacenters? If yes, when? So maybe first question, can I ask Cindy?
Cindy Lim
The total number of generation units in Singapore, if you look at the age profile, about one third of which is end of life by 2030 to 2035. That’s one. And secondly, the efficiency of the fleet in the market is also pretty — adding is a competitive advantage. So if you ask me about generation margin is a function of efficiency function of gas upstream gas contracting strategy, which is commercially sensitive. So we wouldn’t have took the opportunity to plant it if we don’t have confident of the performance of the new unit. Let’s put it this way.
And I think this is further cement by the fact that posts are planting you see me also calling RFP and giving a very strong signal that the foreseeable demand end of five years on is going to be very helpful. Thank you.
Loh Chin Hua
Thanks, Cindy. So on this point on AI, definitely AI has had very interesting adding a certain — we’ve seen a very strong demand into the datacenter space. We’ve seen that some of these datacenters now are getting bigger and bigger. So I think there are great opportunities for us whether we need to go into a datacenter that is only for AI, I’m not so sure. But this is an area that, obviously, we’re always dependent on what our customers are looking for.
I think the key point here is that with AI, and it goes beyond Generative AI, I think there’s certainly, as I said, very strong interest in having more datacenters. And we’ve seen various announcements in the last week or so. The key contribution for Keppel is that we are very, very much in the leading edge in terms of developing solutions that would lead to more energy efficient datacenters, datacenters that use — don’t use potable water to cool. And these are areas that Keppel has been working on for years. So it’s not something that we just suddenly thought about. And I think that puts us in a very strong position.
And of course, one of the key things that Keppel can do that very few if any can do is that we also have infrastructure division that is very much focused on looking at renewable energy looking at hydrogen looking at cooling. So all this put together puts us in a very strong position to solve for this challenge, which is how to provide more compute power for the datacenters, yet take care of making them more sustainable, use less water, use less carbon, et cetera. So these are things that Keppel is very much positioned to do.
And of course, not to forget, datacenters are also quite capital-intensive. So, for us, we have a really well proven ecosystem of capital recycling. We create private funds to co-invest and then after the assets mature, we put them we monetize them through the REIT as a strong sponsor, to KDC REIT. So all this puts us in a very unique position in terms of playing our part in this digital transformation.
Okay, next question. I’ll take another question. And I go to it. Okay, this is a question from Brandon of Citi. What’s the expected timeline to divest the S$6.3 billion of residential land bank and inventories? What is the contribution from China for the S$6.3 billion? And if China remains challenging, are there alternative plans for to divest these assets?
So if you look at the S$6.3 billion, we have both the land bank as well as our credit notes from the Asset Co. I think that’s how the S$6.3 billion is made up of. The credit notes, as I mentioned, Asset Co has about S$ 950 million in cash. The day rates charter rates are all improving. So, obviously, we were hopeful that we will be able to take advantage of this increase inquiries to see how we can bring forward the repayment of these credit notes.
As far as land banks are concerned, we have been actively divesting including in China. I think last year, I’ll let Lu-yi to add a few colors to it. But we have done some divestments, including in China. It is more challenging for sure, but that has not stopped us from continuing to, to monetize. And we do have, as I’ve said before, we do have a pool of assets, which will allow us to kind of bring assets that might have been planned for later years, bring them forward. For whatever reasons, the assets that we had planned to divest in the current period has some challenges. So there are some optionality that we have.
But maybe I ask Lu-yi to talk a bit about churn [ph].
Lu-yi Lim
So just in terms of the asset monetization for real estate, I think as CEO and CFO shared earlier, we monetized about S$111 million sorry, S$105 million in 2023. Out of that SR94 million came from a project in Chengdu in China. So we will continue to monetize. We have a land bank still about S$2 billion across our markets, China comprises about S$1.1 billion of that we have about 16,000 units mostly sell in China.
But I think as we look across the Chinese market, we have to time it right. When the time is right, including in this year, we also have objectives to divest some of our assets.
Loh Chin Hua
Okay. Brendon has a follow up question. I will address that then I’ll come back to — who is here. Brandon’s question, in your 2024 New Year message, you mentioned that Keppel will continue to grow FUM to reach S$200 billion by 2030, including through exploring opportunities to acquire other platforms. To accelerate growth in your infrastructure and connectivity segments, is it correct to say that you will no longer explore other — further acquisitions or real estate platform and will instead focus on infrastructure and connectivity platforms? If so, what type of valuation multiples do you expect to pay?
I think it is true that we are looking, we have been approached both from across the different, I will say all three segments. But given that we have, quite strong with the acquisition of Aermont, we will be quite strong in the real estate side of the segment. We are already quite strong in the infrastructure and connectivity, but we are clearly, looking to diversify a bit. So clearly looking at all those.
But in terms of valuation multiples, I think, I think we have been quite prudent in how we approach. I think we are paying something like 13-14 times EBITDA multiple for Aermont. So I think for Keppel, it’s really looking for a win-win situation where we can actually not just be seen as except for the partners, but more importantly, how can we come together to create a bigger pie for everyone? And I think that was really the main rationale for both Aermont and Keppel in pursuing that partnership.
Okay, so now sorry, I’m coming back to [Indiscernible].He’s been waiting patiently. Please go ahead.
Unidentified Analyst
Thank you, Chin Hua. Many congratulations on your very strong results. I have two questions. On the first one, I think probably for you. And the second one is a series of questions for Cindy.
First question is on your asset monetization. Momentum has clearly slowed in ‘23, it was a challenging year. So curious to hear what you think about, this asset monetization in 2024. What should we look at? What’s our number shall we pencil in?
And then the second question for Cindy, which you’re going to answer later, is your large single external client in infrastructure contributing the largest amount of revenue in full year 2023, who was that?
Loh Chin Hua
Okay, so we stopped there further, in case you have more questions. I think it’s true, our asset monetization has slowed, because quite a number of the assets that we have in the list are real estate assets. But as you have heard from Lu-yi, and you see, and CFO, you’ve seen that we have still managed to monetize including in if I can say very difficult market like Myanmar. We have also been able to monetize.
I mean — you guys must think it’s not just a number, right? These guys managed to sell something in Myanmar not. So, so it shows that my colleagues are all very focused on getting this done. And we’ve committed to getting it done.
I think in terms of numbers, we’re still looking at this S$10 billion to S$12 billion cumulatively by 2026. So this is kind of the number that we were shooting for. And I shared earlier that Asset Co is doing well. So I think we — we’ve said before it’s doing well, things are improving, but we’re starting to see that it’s not just improving, but we’re starting to see, S$950 million in cash in Asset Co is a clear sign that things are performing. And we are getting or Asset Co is rather, I should say, Asset Co is getting good inquiries for the assets that we have there. So, we’re hopeful that we will be able to accelerate that. And we have about four point something billion in credit notes. So that’s not fact that.
The S$901 million is not in the monetization, because it hasn’t hit our books is at Asset Co. So that will be very big, and as what Lu-yi said, we’re still looking at monetizing our land banks. And, the way we approach monetization, of course, we want to get the best price that the market can offer. We don’t have to sell, we’re not a forced seller.
But at the same time, we also look at opportunity costs, because if our assets are historical costs, and there is a good time for us to divest. Of course, you all want to divest at the peak. But if there’s a decent opportunity for us to divest, we will take it because we can redeploy the capital to earn more. Okay, hope that answers. And then maybe Cindy to —
Cindy Lim
Can I clarify the question is on who are our large customer? Or is there one large customer?
Unidentified Analyst
You announcing your segment report, you have large customer about S$1.9 billion revenue contribution coming from infrastructure development, infrastructure segment? Who was it?
Cindy Lim
Okay. Is it referring to EMC? That’s the wholesale market company? Yeah, the clearinghouse for our sales of electricity.
Unidentified Analyst
Right. Thanks. So I just want to follow up on that. Right. So in first half your single external client was EMC was also your biggest hit about 1.2. So your second half was actually a revenue decline of S$700 million, right. So if EMC’s revenue declined, but your infrastructure net profits still rose, and the net margin improved significantly, from 11%, to 18%. But I’m quite curious to understand how that dynamic actually works?
Cindy Lim
Well, we tend to say this is part of our competitive advantages. So beneath it, if you unpack the number, there’s a component of gas contracting, that’s also a component of efficiency. And there’s a huge component on the availability and reliability of the generation. So say, give and take, if you happen to be suffering from unplanned, unplanned outages, you will have downside. So therefore, the quality of our O&M, which is operation maintenance crew, in our operating assets is very important. This applies not just for the power generation, but also for waste to energy and water assets. When you’re not available, or when you’re you didn’t plan for the outage, the penalty of buying in a desperate manner from the marketplace is going to create damages to your financials, you understand the market.
Unidentified Analyst
Thank you. I roughly understand that. But that was talking about just efficiencies. So maybe could you just help us understand in terms of how you derive that margin expansion? I suspect it comes from the power side considering that EMC is probably where most of your spot contracting your spot electricity sales goes to. So considering that spot rates were actually done in second half, does that mean that this 18% that we’re seeing on infrastructures, net margin for second half is the sort of baseline we should be thinking about your contractor positions going forward?
Cindy Lim
We’ll keep it short. Let’s get into the technicality. First and foremost, we since last year we in fact, we don’t have any of our customer on spot, that’s number one. And number two, the contract spread usually will be protected in the sense of it’s either hedge or fuel pass through. So revenue In terms of the electricity clearing prices, is just a guideline. We focus on spread. That’s the important part. Yeah.
Loh Chin Hua
I think he’s trying to understand where your spread, how come your spread is improving, despite the —
Cindy Lim
I have earlier, explained a lot. It’s a function of gas price. It’s a function of your operating margin, in this case efficiency or the machine as well as your own OpEx.
Unidentified Analyst
Okay, okay. Thank you.
Loh Chin Hua
Thank you. Siew Khee has been waiting patiently. I’ve been asked to make sure that I don’t ignore you anymore. So, please.
Siew Khee
So please, okay, I will not ask Cindy on why the spread is so strong. But just understand that the quantum of growth of infra is because you had actually managed to very opportunistically close contracts at higher spreads from all the older contracts that roll off? Let’s say they have two to three years. So with that, can we just expect that – I know that your profitability for infra will be sustainable? I think that’s the message that you’re trying to tell us that it is sustainable. But we’re trying to understand whether the growth could just be — maybe just steady law, because you have actually roll off. When we contracted all the order to the two to three year contracts in the past two years. That’s question one.
Loh Chin Hua
We will start with that, okay, Cindy, you want to take that?
Cindy Lim
By the same token, as you progress along there will be customers who will be coming on stream to look for electricity contracts purchases. So our commercial team and our retail team is, like I said earlier laser-focused in how we respond to customers’ RFP for electricity proposal.
The healthy spread, let me just emphasize is not taken for granted. It’s a portfolio approach, there are times whereby we begin to want to engage in a price or spread to the bottom. So that is the key. Our contracting — the way we contract our portfolio allows flexibility. And to us flexibility is very important. Even the upstream sources of gas, the flexibility of our gas supply is very, very important. So it’s really a secret sauce, which I think over the quarters, we have demonstrated even during the most trying times we remain disciplined.
Loh Chin Hua
So, Cindy — a very good chef. Always invite you to her place to cook the meal, but she won’t tell you what the recipe is.
Siew Khee
Just to confirm, the increase is mainly from power, and there’s no gas opportunistic feeling.
Cindy Lim
Well, if you look at the spot gas now, the spot gas price doesn’t allow any opportunistic gas optimization. But for us, I think we have the benefit of not depending on a single source of gas, let me just say that.
Siew Khee
All right. Just in the slide, you mentioned that there’s fee structure change for higher asset management fee. Can we elaborate on that?
Loh Chin Hua
So you say that, sorry.
Siew Khee
In the Infra, in the slide, it says that we have a change the positive fee structure change higher asset manager. So what like? Can we elaborate on–?
Loh Chin Hua
So this is the process that I think KIT went through to change or revise its share, its fees arrangement, which was approved by the shareholders at an AGM last year. So this one has kicked in and has resulted in a higher fee income. But of course, its higher fee income is on the back that we have actually created more value for KIT shareholders.
Cindy Lim
So remember the KIT made a special distribution out of Ixom’s value creation. So that was actually quite a large distribution to unitholders. And on the back of that there are some fees related to it.
Loh Chin Hua
So you say performance fees?
Cindy Lim
Yeah.
Loh Chin Hua
That kicked in.
Siew Khee
I just have three more questions. What is the valuation gain in infra?
Cindy Lim
Also, valuation gains infrastructure relates more to the private funds. So that’s Keppel Asia Infrastructure Fund One.
Siew Khee
And we had some industrial land sale in SSTC, in a second half. So that actually caught in quite a fair bit about S$30 million over of gain. So just wanted to just check that, going forward, I guess that the opportunity of opportunity that you see more in 2024 to invest the other side–
Loh Chin Hua
I think we continue to see, I mean, we’ve been in sustainable now over 15 years. And over this period of time, actually, again, it’s at historical cost that we have the land. So any land sales, it’s actually quite accretive to us. And we do you see continued opportunities as a pipeline of land plots to be sold. And these will be agree with the partner on when to release it for sale.
Siew Khee
Then finally, for Chin Hua, you mentioned that you’re looking at the S-curve growth. So where are we right now? Where are we, because you’re not talking about S-curve profits, like you’re talking about the growth momentum? So just wanted to hear your views on why you use S-curve?
Loh Chin Hua
I think I think you can see that. Obviously, we had — as we kind of restructure and we transform, our original high was quite high. But this was back in, say 2013 when the group had also quite a big, big year. So from that point, through, of course, we had the identical, you take a long time, like we went through the history of what happened with the oil price and how it badly if affected KOM. So we kind of bought them out a few years ago. And I think we are — we can see that these last two years have been quite transformative. And as I mentioned, it’s not just about the financial numbers, but it’s really how the group is now positioned for the future growth.
And when it comes to growth, right, a lot of times, it’s not just about — I mean, profits are important. But it’s really how the market will value our profits. So we’re hopeful that as we become more recurring, and we become more growth oriented, that analysts like you will start looking at applying growth multiple to our earnings.
So the growth will come in various forms. It will come from, obviously, profit growth. But I think more importantly, is the type of earnings that we have the quality of the earnings. And the type of earnings that are recurring will hopefully allow the market to apply a growth multiple, rather than looking at the traditional way where you look at price to book discount to RNAV, et cetera.
Siew Khee
Thanks.
Loh Chin Hua
Okay. Yes, maybe I take one question, and I’ll come back to you. This is from Goola Warden of The Edge Singapore. Congratulations on your excellent results. As an alternative asset manager, what are your priorities in terms of the different groups of investors, such as capital shareholders, and your REIT unitholders as you get towards your 200B target? Will REIT unitholder interests still be protected?
Short answer is yes. But I think what’s probably more important is that as we position ourselves as a global asset manager, we can only be successful if we continue to put investors’ interests first. Of course, we have many stakeholders, including, of course, our own shareholders. And I think our shareholders will know that most almost all the time, our interest is aligned between the shareholders and our investors in the funds and the REITs that we run.
Where there are situations where there is a potential conflict? We have very good strong corporate governance to deal with the IPT. But I see that taking care of different stakeholders’ interest is very paramount to the group.
And specifically to answer your question on unitholders for REITs, all our LPs for the funds. As a global asset manager, we cannot look after their interests. If we don’t look after their interests we don’t have a business. I think a case in point recently, which was announced by KIT is made perhaps a good demonstration. Through the good work done, of course, between KIT and also the sponsor, our infrastructure division, we were able to work with the NEA to extend the contract for Sunoco, so it was coming to an end.
And so, I think it clearly shows that we can work in a in a situation where we are creating value for the unitholders of KIT. And also at the same time is good for Keppel shareholders, because obviously will earn fees as well for the infrastructure division and our asset management division.
But at the same time, we are also, an investor, we have shares in KIT. So we will also benefit as a unitholder. So I don’t see that there’s any costs for concern.
As we push towards 200, if anything else, I will say that investors in our REITs, and also our LPs in our funds should be very comfortable that we will continue to look after their interests in the progress of — also looking after the interests of our shareholders.
I’ll answer one more question, and then I’ll come to the audience here. This is from Eken Cho of AMAT [ph] in Singapore. The question seems to have come from a retail shareholder, a big chunk of profit from real estate was from valuation gains with China’s real estate slum, how bad will it impact future earnings? Will there be any impairments on it? Appreciate more color on this aspect?
I think that has been dealt with between myself and Lu-yi. So I will not go further into it.
Can I take one question from the floor? Yeah?
Derek Tan
Hi, this is Derek from DBS. So congrats on the good results. I just had two questions. The first is regarding your gearing. So I just wondering if you have an internal gearing ceiling? And has this changed since the new environment, which is like higher, higher interest rates right now?
And my second question is regarding your operating cash flow. I noticed that your working capital deficit is rather high, just wondering which segments consuming this and what is continue. Thank you.
Loh Chin Hua
Okay, I will ask, Kevin, to address those two questions. Kevin?
Kevin Chng
Yes, in relation to the first one. I mean, the gearing is obviously been something that we manage very closely, as far as what we’ve said, around utilizing. We have an internal ceiling or not to cross one for us to manage. Obviously, as CEO has mentioned, as the profile of our earnings as a group changes, then we expect that to be easier to manage as we pivot our organization. The second question is —
Loh Chin Hua
Second question on working capital. Working capital will increase.
Kevin Chng
Working capital, the increase in working capital is essentially in relation to some of our projects that we continue to build, right. It’s a timing issue, as far as work that has been done, but collection will come a bit later on. So that’s the explanation for working capital increases, primarily in the infrastructure segment.
Derek Tan
So will this continue, just wondering what would the working capital deficit look like going forward?
Kevin Chng
Working capital deficit, I think you would expect it to narrow as we go forward without change of plans. Because I mean, I think to the point of how you look at our businesses to evolve going forward, but as it relates to some of these projects, you will continue to see some gaps in our working capital, because there’s a timing difference when we cut off, as we continue to build these projects. But you’re right to say that over time, if you look at the profile of earnings, yes, the working capital deficit, you will see narrowing or that’s what you would expect to see.
Loh Chin Hua
I think I think generally you’re expected to come off because two things. I think one we are not actively buying, land bank or land for development for sale. So we’re not adding to the — because those will all be classified as working capital. We also are not, in the past, I mean, long, long time ago, we were doing all those REIT constructions on a deferred payment. So that requires a lot of working capital from comp in those days.
Now all the projects that Cindy takes under the infrastructure division, there is milestone payments. So this working capital increase is more a timing issue as what Kevin has said. We are — as a group we are now I mean, we have been very, very focused on making sure that our balance sheet is managed carefully.
The other thing I will add is that, as what Kevin have said, as we kind of transformed the group’s earnings, the net gearing also becomes less meaningful. So you see that we in more recent times, we have been reporting the net debt to EBITDA. So we will continue to develop that more as a measure because as you see the changes in our earnings, that’s probably more metrics to look to focus on, especially as we clear our land banks, we clear our credit notes, then the thing becomes a little bit more clearer. And maybe at a subsequent results briefing, we will also try to dissect that to give the market a better sense of how we are approaching some of these debt numbers, debt metrics.
Derek Tan
Okay.
Loh Chin Hua
Thank you. Yes.
Dexter Wei
Good morning, Dexter from Bloomberg News here. I wanted to ask you, I know a lot of people have asked you this question. But on China specifically, it’s still your biggest presence in terms of residential, commercial. I mean, like, I trying to just understand like, I think your point that you have mentioned that you’re going to divest from China. But is it still going to remain your biggest market in the long term? Like, is that still your target? Are you progressively trying to divest in the sense that it will gradually reduce become second or third, because it’s still quite a bit quite a portfolio?
In terms of all over China. Evergrande, obviously, liquidity this week. Are you — do you still think there’s more to come or worse to come in market? And also, to your point, just now that you guys are busy looking for a great opportunity to divest? A lot of asset managers right now, we heard — we hear from them say that, it’s very hard to buy buyers in the Chinese market right now and you need huge discounts. Are you facing that challenge now as well?
Loh Chin Hua
Thank you for your question. I think, first and foremost, we are a bit ahead of the game, compared to a lot, because we have, as I said, we’ve been actually de risking from China since 2017. We have as I said, we have no one is sold S$3 billion worth of land bank a day, making a profit of S$1 billion, but we’ve also brought back about S$5 billion worth of renminbi. And that’s because our business model has changed. We’re no longer buying land, not just in China, we’re not buying land almost everywhere.
Where we buy land to develop, it will be usually as part of a fun. So it’s not just strictly on our balance sheet. So I think that is something that has changed for us. And the other thing I wanted to say also is that, you might have caught that we had announced last year that we had relook at our China playbook. The group has been in China for 30 years, we have done very well there. We still believe that China is very good market long term. We will continue to be engaged there.
But the things that we will do that will change. So it doesn’t mean that we will continue to do more residential land development. We have really looked at our playbook looking at what does China need today? What are the areas that Keppel can bring value to the new China? And also looking at what are the areas that policymakers in China are encouraging and what are the areas that discourage discouraging?
And actually, we find that we have quite a lot to offer for the new China, but it may not well be in the old traditional ways of building homes for sale. So I think that’s the change that you should factor in.
Dexter Wei
It may remain your largest market then?
Loh Chin Hua
I can’t hear you. Can you please –?
Dexter Wei
That’s remain your largest market, while the largest focus of your firm going forward.
Loh Chin Hua
We have now said we’re going to be a global asset manager. So, obviously, you cannot be that, I mean, it will be an important market but it cannot be our only market. So we are now I mean, the Aermont acquisition is a clear indication of the group’s move to be more global. And it’s not just about whether it’s China or not China is really more global versus say, Asia-Pacific.
Dexter Wei
So does that mean that you guys would focus more on Europe and U.S. future acquisitions in a sense, then instead of Asia?
Loh Chin Hua
Well, we are growing. So if we are going to grow to S$200 billion, it doesn’t mean that we go the Europe and we stop in Asia. All right. So it’s not — not everything is in black and white, I think you’re trying to kind of pin it in black and white. We’re just saying that, we are growing right as a group. So we are going to be global. So we’ll continue to be active in Asia-Pacific. But we are also growing new areas.
Dexter Wei
Just two questions on Singapore. And one on your restructuring one on I suppose I know this one I didn’t ask him specifically on the unit. So has been about half? Is there a reason why it’s been not as high as other projects that you had?
And the second thing is on, you guys are very different and you got a huge profit from the sale of Goyan [ph] last year. Do you foresee any more core sales as part of your restructuring or sales of any core units as part of some of your restructuring going forward?
Loh Chin Hua
We don’t speculate on these things. I know you all like to know. But when the deal is done, we’ll tell you what we know. I can’t tell you anything for now.
I think on Nassim, do you want to?
Lu-yi Lim
Yeah, on 19 Nassim, we have sold about 15%. So far. The reason for this is also, the ABSD rules did change last year. So that’s slow demand. While we’re still continuing to see interest from buyers. And we have quite a lot of time to play with because we have a very small ABSD, which we have actually already paid for. Because we actually owned most of the units, when we redeveloped 19 Nassim. So the time pressure on us is a lot less. And even for the QC, it’s up into 2026. So we have time to sell our units.
Loh Chin Hua
Thank you, Lu-yi. Can I move on to two questions from the web? First question is put up by Paul Chew. He had asked earlier from his from — Paul from Phillip Securities. Can you share some color on your conversations with the funds when building AUM for — I guess he meant fund investors, AUM for infrastructure? What are the attractions are working with Keppel and potential push backs? If any? Chris, do you want?
Christina Tan
Yeah. Thanks, Paul. For infrastructure, actually, the investors are really actually finding the sector really attractive. Because like we say infrastructure is really essential services with very good cash flow and inflation hedge. So there’s a lot of interest from investors. And I think what’s really unique about capital, which they like is that we are already in the right space at the right time. We are in the providing solutions, whether it’s for clean energy, clean water, clean environment. And that’s what the world really needs, with growing urbanization trends.
So we will say that actually Keppel really in the right segments. And we have very deep operating capabilities as well in these various segments that we have generating actually more value for investors. And I think they also liked the fact that we’re in digital infrastructure. So I think there’s no other fund manager like Keppel who can build a subsea cable from the west coast of U.S. through to Guam through to Singapore, and then linking up the rest of Asia. I think they find that all this very unique skill sets or operational capabilities that Keppel have that they can find working with other managers. So this remains something that — this is something which investors all like and it’s attracted to Keppel.
And I think that leads because, Keppel remain very focused because we are an operations. So we are very good in terms of value creation. So the more visible ones, you may not, we may not announce everything that we’re doing for private funds, but the more visible ones you will see in KIT where we actually do create a lot of value with even if it’s generating extra additional cash distribution for investors growing the EBITDA from S$120 million to S$200 million, even during the COVID period.
So Keppel is always looking for ways to improve our performance. So we are not the account manager. So we’re just waiting to sit there to, hopefully hoping that success is based on financial structuring or engineering. But we are more operational in terms of our capabilities. So I think the value creation business where our investors I think, find it interesting. And because infrastructure is a asset class, which a lot of CIOs are looking to actually allocate more capital to. So we’re seeing actually strong growth in this area. Thank you.
Loh Chin Hua
Thanks, Chris. There’s a question from a shareholder. So I think we should take that. He has three questions. They’re all, I think for Cindy. So, Mr. Tan [Indiscernible] I will go one question at a time otherwise, we all can cannot remember. So, the first question that Mr. Tan has asked, is Keppel assign a various MoUs for last couple of years any indications of which of these MoUs and getting closer to execution stages?
Cindy, maybe we can try and answer this shortly — as short as possible. Otherwise, there might be more questions okay, go ahead.
Cindy Lim
So thanks. The Various MoUs are healthily progressing, some multiyear kind of partnership, some very technical and executable. So those relating to EAS, for example, that we announced last year in Vietnam, Thailand, they have translated into contracts and some of them are already contributing to our earnings.
Loh Chin Hua
Okay, thank you. Second question is in your opinion, how is Keppel progressing on regional ASEAN grid with MoUs and import approvals from EMA?
Cindy Lim
So, you would have heard as part of building the energy resilience of Singapore and the region, as well as in the pursuit of decarbonization by using more renewable. ASEAN power grid is a very strategic imperative for Southeast Asia. And Singapore has played a very leading role in making this happen. To this end Keppel has secured 1.3 gigawatt of conditional approval for the power importation project. This is progressing pretty healthily. As we all know, such projects entails multi-consideration some being legal, some being jurisdiction, regulatory, operational and technical. So, you will take multi, it will take a bit of time to iron out the development.
But happy to say that we are the first that managed to flow multi-borders renewable across Thai, Laos, Thailand, Malaysia Singapore. So, this learning curve and this track record will position us even better in risk management and bringing such input projects to fruition in time to come.
Loh Chin Hua
Thank you. Third question Cindy, how is your progress on MoUs for low carbon energy alternatives, given that green coal in India appears to be making a lot of ground in India in that area?
Cindy Lim
So, this is a linked to the earlier comment on the MoU. So, the key if I were to categorize our MoU site, I said a big chunk will be related to low carbon energy. In fact, we are the forerunner unprecedented to use low carbon energy value chain in a scalable manner. So other than the EAS MoU which I mentioned earlier that has translated into contracts or already delivering. Some of our low carbon energy MoUs with Green Coal for example with ITL and CQH2 in Australia has reached, some at the feed, some at the pre-feed for the CQH2 in Queensland, happy to report that our consortium is one Have the six successfully shortlisted for the hydrogen head start program in Australia. And this is going to be pretty interesting development to watch.
Loh Chin Hua
Thank you, Cindy. There is a question from Anita Gabriel of the Business Times. Her question is the lion’s share of Keppel’s revenue stems from Singapore. Can I have an idea on how this geographical spread has changed over the years? And how much of that happened in recent years, owing to the transformation program? And what can we expect going forward?
It’s a good question. Anita. I think, first and foremost, if you look at how the group’s revenue has changed over the years, I think, we have always had a very — the revenue, the top-line, one of the two of the biggest contributors were from KOM [ph] as well as from Keppel Land in terms of the old Keppel Land in terms of residential development for sale.
Of course, KOM’s is no longer now part of the group. And even on the real estate division, as I think we’ve explained, we are no longer emphasizing on land development for sale other than in, so we are focusing more on recurring income on the urban renewal program that we have. But in its place, now, we have the biggest contributors are from infrastructure division, and also from M1 and our Connectivity division. And at this moment, most of that revenue is generated in Singapore, right.
Of course, you have also heard from Cindy that we are now also where we are not forsaking Singapore, we are, in fact, doubling down with planting a new power plant here in Singapore. We are importing renewable energy as well. But the infrastructure division is also looking outside Singapore as well. So I think you will start to see that having an impact over the years to come.
Then, I think — the other thing to remind ourselves is that as we kind of become a global asset manager, and operator, the asset management side, revenue is not as significant because we are really focusing more on AUM and net profits. But because we are an operator, the revenue side is important from that perspective.
So I think there’s a bit of that change that we have to kind of take into account. And on the asset management side, whilst we book, our asset management fees in Singapore, many of the assets that our funds invest in our REITs invest in increasingly will be overseas. And this is not very different from how Singapore has grown as a center financial center doesn’t mean that all the activities happen here. But this is where we have our headquarters.
This is where we add, the headquarter of a global asset manager, so we could have earnings in different parts of the world outside Singapore. But it gets impacted here, or recognized here.
I hope that answers your question. There is one more question. Yeah.
Unidentified Analyst
Sorry. Unnecessary delay your celebrations for fantastic results and good bonuses for the team, all the hard work for last couple of years. There’s a couple of questions. Or maybe for M1, I think one of the key growth drivers was a return or recovery of the rowing business. How far are we from 2019 levels? And in terms of cost savings from decommissioning the old tech stack, can you help us quantify the cost savings going forward?
And the second question is in regards to your Vietnam business, obviously real changes in land reform in past significant drop in mortgage rates, how you think about that business? Should we be seeing acceleration in terms of units sold launched? And will there be opportunity for us to eventually devise something from Sports City who usually has been delayed for many years?
Loh Chin Hua
Okay, I think Mann was hoping to get away without question, but he’s got one. So Mann, can you take the first question?
Manjot Singh Mann
I think, he almost had an eye contact and he caught me looking at him. No, but to your questions first on roaming, I don’t think we’ve reached the pre-COVID levels yet. I think we are close to about 80% of pre-COVID levels. My suspicion is that they may not ever reach pre-COVID levels, because I think people have learned to live without traveling all the time. So I do expect a marginal increase from where we are. But I don’t think we will ever get back to pre-COVID levels on roaming. So that’s the question on roaming.
On decommissioning, as we migrate our customers, we’ve completed our consumer migration to the new platform. We are now looking at migrating our corporate customers, our prepaid customers and then finally our B2B enterprise business as well. So as we migrate to the new platform, we are decommissioning the legacy stack, which has significant impact on our — positive impact on our bottom line on costs, saving costs.
This year, because it’s a staggered decommissioning. We expect close to about S$10 million to our bottom line. And as we go along, the full year impact would be felt in ’25-‘26 going forward, so. But of course, like I said, it’s a staggered decommissioning plan. And we are being very careful in how to decommission the legacy so as to not impact the service to the customers.
Loh Chin Hua
Thank you so much for coming in. I think contextually, I think Vietnam, we’ve been in Vietnam, as long as China’s over 30 years. And it will remain one of our key markets in emerging Asia alongside India and China. But I think as we’ve shared, we also pivoting to the developed markets in Asia, as well as Europe with Aermont.
Specifically in Vietnam, I think one of the issues at the moment, as you will be aware, is the anti-corruption drive that the government is pushing hard on. And this has created a higher air of caution. And so that’s what creates quite a lot of delays in terms of the sales permits or construction permits that we can get to launch projects. But notwithstanding that, I think the underlying demand in the market is very strong.
So when we do launch, we actually sell it very quickly. Even our partner recently, they had a project called Privy [ph], I think about 1,043 units within two-three days, it sold 90%. So the underlying demand is there. I think what we need to do is to navigate the system to get the approvals that we can get to launch our projects, including Saigon Sports City.
Thank you. If there are no further questions, I want to thank everyone for attending this call and asking very good questions for myself and for my team. Have a great Chinese New Year, Lunar New Year.
