Keppel to unlock close to S$1.0B from sale of M1

Keppel to unlock close to S$1.0B from sale of M1

Keppel Corporation is set to unlock close to S$1.0 billion from the potential sale of its consumer mobile business, M1. The divestment, which has been a topic of discussion among investors, could serve as a catalyst for re-rating Keppel's stock. CGS International analysts estimate M1's consumer business to be worth between S$700 million and S$900 million, with its divestment seen as a potential re-rating catalyst [1].

Keppel's plans to transform into an asset manager have been gaining traction, with the company focusing on divesting non-core assets to streamline its operations and boost earnings growth. The divestment of M1's consumer business is part of this strategy. In its latest earnings report on Jul 31, Keppel announced plans to "substantially" monetize a portfolio of non-core assets by 2030, which includes legacy offshore and marine assets, residential land bank, certain property developments, and S$2.9 billion of embedded cash and receivables [1].

The potential sale of M1's consumer business is expected to cheer the market, as it aligns with the broader trend of consolidation in the telco industry. The market is currently crowded with four operators and about seven mobile virtual network operators, making consolidation a likely scenario. Manjot Singh Mann, CEO of Keppel's connectivity segment, noted that many SIM-only plans are replacing contract plans, diluting average revenue per user across the industry [1].

Keppel stands to benefit from retaining M1's enterprise business, which complements its data centres. With the increasing digitalization of businesses, there is a growing demand for hybrid and multi-cloud solutions, creating synergy between Keppel's enterprise business and its data centre operations [1].

The potential sale of M1's consumer business is one of several catalysts that investors can look out for. Another significant catalyst is Keppel's green energy projects, which are part of its efforts to contribute to the building of an Asean power grid. Keppel has secured conditional approvals for two projects, which could unlock very large-scale opportunities in renewable energy [1].

Keppel's green power efforts come amid significant headwinds, including global sentiment cooling on renewable energy and the threat of tariffs. However, the improving economics of solar energy and the need for energy security in South-east Asia present long-term growth opportunities for Keppel. The company's ability to ride this trend could prove to be a long-term growth catalyst.

Keppel's stock is currently trading at 17.2 times earnings, which is some way behind global asset management giants like BlackRock, Blackstone, and KKR. Whether investors will value Keppel at the levels of these asset management giants will depend on the pace and execution of the non-core asset divestments.

References:
[1] https://www.businesstimes.com.sg/companies-markets/new-keppel-shows-promise-m1-sale-and-green-projects-could-stir-more-excitement