Goldman Sachs Bullish on Keppel Corp (KEP:SP) Stock, Forecasts 14% CAGR in Core Profit - Analysts Optimistic about Growth Potential
Goldman Sachs has initiated coverage on Keppel Corp (KEP:SP) (OTC: KPELY) with a Buy rating and a price target of SGD7.80. The investment firm believes that Keppel Corp is well-positioned to benefit from the increasing demand for electricity and the ongoing energy transition, which is expected to drive a 14% compound annual growth rate (CAGR) in the company's core profit after tax and minority interests (Patmi) over the next three years.
According to analysts at Goldman Sachs, Keppel's infrastructure segment is poised to capitalize on the expected rise in Singapore's electricity demand, which is projected to grow from 2% over the past ten years to 5% from 2023 to 2030. This growth is anticipated to be driven by the expansion of data centers, advanced manufacturing, and the adoption of electric vehicles.
The integrated power business of Keppel, which is set to increase its capacity by 50% by 2026, is expected to benefit from this surge in demand. The company's return on equity (ROE) is also forecasted to improve, rising from 7% in 2023 to an estimated 10% by 2026. This improvement in earnings visibility and ROE could lead to a re-rating of the company's multiples from the current 1x price-to-book (P/B) to above book value, aligning with the valuations of its peers in fund management and infrastructure.
Additionally, Goldman Sachs highlighted Keppel's decarbonization and sustainability segment, which has witnessed a 21% increase in long-term contracts over the past 1.5 years. These new contracts are expected to start contributing to the company's earnings from 2024 onwards.
In summary, Goldman Sachs' Buy rating on Keppel Corp reflects the firm's positive outlook on the company's ability to leverage structural shifts in energy demand and its strategic business expansion. The expected dividend yield of 5.3% for 2025 further adds to the attractiveness of investing in Keppel.
Analysis:
This article discusses Goldman Sachs' bullish stance on Keppel Corp, a Singapore-based company operating in the infrastructure and integrated power sectors. The firm's positive outlook is based on the expected growth in Singapore's electricity demand, driven by factors such as data center expansion and electric vehicle adoption. Goldman Sachs anticipates a 14% CAGR in Keppel's core profit over the next three years, with potential for improved return on equity and valuation multiples. Investors may consider this information when making decisions about their investment portfolios, particularly those interested in companies involved in energy transition and sustainability initiatives.
