Keppel : Q&A Transcript

Keppel Corporation 1H 2022 Results Webcast

Transcript of the Question & Answer Session

28 Jul 2022, 5.30pm, Keppel Bay Tower

LCH	Loh Chin Hua, CEO of Keppel Corporation
CHC	Chan Hon Chew, CFO of Keppel Corporation
CT	Christina Tan, CEO of Keppel Capital
CO	Chris Ong, CEO of Keppel Offshore & Marine

1. Louis Lim, CEO of Keppel Land

CL	Cindy Lim, CEO of Keppel Infrastructure
TP	Thomas Pang, CEO of Keppel Telecommunications & Transportation
MSM	Manjot Singh Mann, CEO of M1

Questions from Xuan Tan, Goldman Sachs

On Slide 8, for the potential S$200 billion in assets under management (AUM), what is the timeline that Keppel Corporation is hoping to achieve that?

LCH: There is no timeline that we are giving. We are just showing that based on our asset-light model and our monetisation plans, we can potentially grow Keppel Capital to S$200 billion of AUM. The time taken will of course depend on market conditions, but I think this is an achievable and quite a realistic potential AUM for Keppel Capital.

Can you also talk about the asset classes and geographies of the additional potential AUM?

LCH: I will ask Christina to address this.

CT: Thanks, Xuan. With regards to the asset classes and geographies, we will focus on what Keppel is strong at in the areas of energy and environment, providing clean energy, clean water. We will also focus on areas in connectivity, which are our data centres and our subsea cables; of course, not forgetting urban development solutions. In terms of geography and asset classes, Keppel has shown its capabilities and strengths, and our investors like Keppel Group because of our capabilities as a developer, operator and manager. We are very confident that we will be able to continue to grow our AUM with the support of all our sister business units realising the potential for us. Thank you.

Questions from Terence Chua, Phillip Securities Research

Could you provide us more insight into the China real estate projects? How much have the average selling prices (ASPs) and sales fallen for the China projects?

LCH: I will ask Louis to address this.

LL: Thank you for the question, Terence. As CEO mentioned in his speech, we are clearly facing headwinds in China as a result of the deleveraging policies as well as the COVID situation. The impact on sales has been significant. For the largest developers across the market, we have seen a 50% drop in units sold. For Keppel Land in China, we have also seen about a two-third drop from 1,550 units that we sold in the first half of last year to 480 units for the first half of this year.

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In terms of the selling prices, because we are in some of the key markets like Shanghai and Wuxi, the secondary market pricing is quite strong. The government sets limits on pricing, so we have not seen a significant drop in prices for those particular cities and micro markets that we are in. We maintain a very positive view on the medium to long-term prospect for the Chinese market. In the meantime, we will continue to see headwinds, but that said, over the last month in June, if you look at the high frequency data, it has improved significantly with an increase in sales of about 61% versus the previous month. For Keppel Land China as well, we saw a very good recovery in our project in Wuxi - Seasons Residences, and the month of June saw Keppel Land having the highest number of units sold for this project year-to-date.

Do you foresee any impairments in 2022?

LCH: For this, I will ask Hon Chew.

CHC: Thanks for the question. As part of the process, in preparation of the results announcement, we have reviewed all the projects under development. The conclusion is that there is no need for any impairments. For the landbank, as we have always said, the cost has low risk of impairments.

LCH: To add to that, our landbank historically has been bought, on average, more than seven years ago, so they were bought at a much lower price than what is considered to be the market value today. The risk of impairment from the landbank is fairly limited.

Questions from Mayuko Tani, Nikkei

Thank you for the presentation. Please give us an update on new and green data centre development plans within Singapore as well as globally.

TP: Thank you very much Mayuko-san for the question. Keppel is indeed interested to participate in the government's call for application for data centre innovation projects in Singapore. We are looking to bring several innovative solutions to the proposal, including a floating data centre module, as well as larger projects that could aggregate demand from various players. We are at the stage of discussing with potential partners to bring in renewable energy as well as green molecules into Singapore in order to satisfy energy security, as well as the energy efficiency that we want to bring to our data centre projects in Singapore. Going forward, this similar concept could be exported to other countries that have similar requirements, as well as constraints in land availability in their locations. These similar concepts could be exported to the regional countries as well.

Anything on the floating data centre project?

TP: We have made a lot of progress on the floating data centre module, and at a stage when we are able to make an announcement, we will make the announcement when approvals have been obtained.

What other technologies are you interested in?

TP: One of the technologies that we use in data centre cooling is in helping to reduce the energy required in cooling, which takes up a lot of electricity in every data centre project. We have invested in a technology company in the US called Nautilus. We participated in the equity of that company. They have launched their first floating data centre module in California, and it uses seawater for cooling of the data centre and has brought the power utilisation efficiency (PUE)

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down significantly. It is receiving a lot of attention from the market. One of the technologies we will use in the Singapore project will likely be seawater cooling to help with energy efficiency.

Questions from Terence Chua, Phillip Securities Research

Hi management, thanks for the presentation. Can you provide more insights into the proposed offshore & marine (O&M) transactions?

LCH: When we first announced the signing of the definitive agreements, we spoke about how this is a win-win-win proposal. It is good for Keppel O&M, and we believe it is also good for Sembcorp Marine. More importantly, it strengthens us, to create a new global champion focused not just on the traditional O&M business, but increasingly on the energy transition. In the recent months, the oil price increase and improving sentiments in the O&M sector all bode well for the Combined Entity.

How far along have you moved since the announcement?

LCH: As reported in my opening remarks, we are making good progress in terms of applications for anti-trust. We believe we are on track for the completion of the transaction sometime in the fourth quarter. Both sides are also preparing to submit the necessary applications to SGX to requisition the extraordinary general meetings (EGMs) that are required for the respective shareholders on both sides to vote on the proposed transactions. All the work that we have been doing is progressing well. The two teams are also working closely on pre-planning for integration so there is a bit of work there, and I believe there has been good progress on that front. Thank you.

Question from Ho Pei Hwa, DBS

Congratulations on the good results. On the property market in China, could management elaborate a bit more on the near to medium-term outlook and strategy to navigate through the uncertainties?

How should we think about Keppel's ongoing projects and new launches ahead, as well as capital recycling activities in China?

LCH: I believe Louis has already provided a bit of detail on the China property market but maybe I will ask him to see whether he wants to elaborate further based on the questions that Pei Hwa is raising.

LL: Thank you Pei Hwa. As I mentioned, the more recent data gives us some cautious optimism in terms of how the market will go forward, but we do think that in the near to medium-term it will be bumpy. There will be stop-start activities as a result of potential COVID lockdowns, so we need to be nimble. The opportunity for us in this period of time is that the Chinese developers may find some challenges with debt financing, and that is where we may be able to come in to partner with them and selectively invest in some key micro markets. The average selling price for some of the cities that we are in have held out well, but that is not the same across the board, as you would expect. So where we choose to play is going to be quite important. In terms of capital recycling, I think you are aware of our asset monetisation plan for some of our assets in China. Given the current sentiments in the market, we will think about timing - when we can get the best value from any monetisation.

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LCH: Thank you, Louis. On this point on asset recycling, we have quite a large pool of assets to monetise, and we have certain plans, we have different waves. When there is some resistance encountered because of market conditions, we have the option of moving forward some of the assets that are scheduled for recycling in later years, moving them to the left. This will hopefully keep our programme on track.

Question from Terence Chua, Phillip Securities Research

Could you provide us with an update on the Bifrost Cable System?

LCH: Thomas, please.

TP: Thanks Terence. The manufacturing of the cable and electronic components of the system started in December 2021. The marine survey for the cable routes have also been completed in April this year. We are currently applying for permits from the various regulatory authorities for the cable lay approval. We expect the cable lay to start in early 2023 and we are aiming for ready for service (RFS) in 2024. The cable is attracting a lot of interest and we already have three cables committed to customers.

Questions from Rahul Bhatia, HSBC

More than 70% of the S$500 million planned buyback is already completed. Does the management intend to carry on beyond the S$500 million given the increased authorisation of 5% buyback given at the annual general meeting (AGM)?

LCH: The 5% increase is very helpful as we embark on this share buyback, but the original intention of this share buyback has a couple of goals. One is when we look at some merger and acquisition (M&A) transactions, particularly involving founders' platforms, we may achieve better alignment with the founders where we pay partly in cash, partly in shares. The share buyback is partly to fund that, and to fund our share plans at Keppel. If and when the shares are used, we will relook at it but at this point in time, we still have a balance so we will complete this share buyback first.

What should we expect in terms of dividend for 2H 2022?

LCH: When the Board met to discuss the interim dividend, we reflected how we as a Group have performed in the first half. We have also looked at what we think we will do in the second half. This is subject to us achieving our forecasts. This is increasingly challenging given the external environment. The final dividend will be decided at the end of the year or early next year, but the interim dividend reflects the confidence that the management and the Board have in our performance.

Could you share if there are new property project launches expected in 2H 2022, especially in Vietnam and China?

LCH: Can I ask Louis to address this?

LL: Yes, thank you for the question, Rahul. There will be new property project launches. In China, we are looking at launching some new units for Phase Five of our Seasons Residences project in Wuxi. In Vietnam, we're looking at three launches for Celesta Avenue, Celesta Gold as well as Empire Sky Residences. We have talked about some approvals that we need to get in the past

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and we are trying to push for them. I am pleased to announce that we have got the construction permit for Celesta Gold and we also have the project approval for Celesta Avenue secured. Beyond Vietnam and China, we are also looking at Urbania in India for units to be launched, as well as Wisteria in Indonesia.

Questions from Paul Chew, Phillip Securities Research

Will Keppel be cancelling the shares bought back?

LCH: As I was explaining to Rahul, the shares buyback programme is to fund share plans as well as potential merger and acquisition transactions. The current plan is not to cancel the shares bought back at this present time.

Can you discuss electricity spark spread in Singapore? What is driving the improvement, if any, especially with the usually high reserve margin?

CL: Thank you Paul for the question. The electricity spread is driven by multiple factors such as the availability of gas supply, planned outages of generators, economic activities that are picking up in Singapore, and last but not least, there is also the weather which impacts the efficiency of generation. Suffice to say that for Keppel Electric, we run an integrated energy business where we also control upstream steady fuel supply. We run our own four units of generators and we have a very reliable and proven electricity retail downstream. This is hopefully supplemented in the longer term - we also have supplies of renewable electricity. Thank you.

Questions from Ezien Hoo, OCBC

Keppel is in the midst of making a number of new investments and expansion into new businesses. What are the metrics that Keppel uses to track and monitor the success of these expansions?

LCH: It is a very good question Ezien. I think this is something that is top of mind for us. I would not say that we are expanding into a lot of new businesses. I think a lot of them are quite close adjacencies, but whatever it is, whether it is into an existing area or into a new adjacency, we will be very disciplined in how we approach these investments. We have a very demanding internal underwriting process. All the CEOs and myself, we are part of a group that looks at all the key investment and divestment decisions across the Group supported by a very strong working team, which will obviously look very closely at the return projections and of course also at the risk that we are going to take on. Ultimately, we are driven by what we call "risk-adjusted returns". And of course, after the transaction has been done, that is not the end of it. We will still keep track of how the various investments are performing. And I am sure there are also lessons that we can draw from this that will then add to our experience and track record, and allow us to be a better investor going forward.

Does Keppel Land view CapitaLand as a competitor in Vietnam and China?

LCH: I think first and foremost, Vietnam and China are very large markets, so there are many players in that market, not just Singapore companies. Each one will play to their strengths and we believe Keppel Land has certain strengths. In these markets, when we compete, we are not only competing with Singapore companies, but also local companies and other international developers.

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