Temasek Drops Bid for Keppel Corporation (SGX: BN4): What Investors Should Know

Keppel Corporation‘s (SGX: BN4) share price plunged to a low of S$4.71 today, down 13% from last week’s close of S$5.40.

The knee-jerk reaction came after Kyanite Investment Holdings, Temasek‘s wholly-owned subsidiary, updated yesterday that it will not be proceeding with its bid for the conglomerate (more on the bid in our original article reproduced below).

For the partial buyout offer to proceed, a number of pre-conditions had to be satisfied.

One of them was that Keppel Corporation’s profit after tax must not fall by more than 20% from S$696 million over the next four quarters including the third quarter ended September 2019.

However, that condition could not be met.

For Keppel Corporation’s 2020 second-quarter, it posted a profit after tax of negative S$698.8 million, reversing from a profit of S$153.1 million one year back.

Keppel Corporation’s cumulative profit after tax for the 12 months before 30 June 2020 (inclusive), was a negative S$164.7 million.

At Keppel Corporation’s share price of S$4.86 at the time of writing, it has a price-to-book (P/B) ratio of 0.9x and a dividend yield of 1.2% (annualised 2020 second-quarter dividend of 3.0 Singapore cents).

The P/B ratio may look low, but potential investors should discern whether it makes sense to buy a stake in a company that’s struggling to grow.

For stock investment ideas, be sure to check out SeedlyReads’ coverage.

Editor’s note: Information below was originally published on 21 October 2019.

In what is probably the biggest news of the Singapore stock market in some time to come is that of Temasek looking to raise its stake in Keppel Corporation (SGX: BN4). This was announced after lunchtime today.

Temasek’s wholly-owned subsidiary, Kyanite Investment Holdings, is looking to purchase an additional 30.55% of Keppel Corp’s shares at S$7.35 each. Currently, Temasek already owns 20.45% of the listed conglomerate. If the deal goes through, Temasek’s and Kyanite’s total holding will rise to 51%.

The offer price represents a premium of around 26% over Keppel Corp’s last traded share price of S$5.84.

Temasek intends to keep Keppel Corp listed on the Singapore stock exchange.

If successful, Temasek wishes to undertake a thorough strategic review of Keppel Corp’s businesses to create sustainable value for all shareholders. The review could result in Keppel Corp “refocusing on and strengthening certain businesses” and/or undertaking potential corporate actions such as joint ventures or mergers.

Temasek sees long-term potential in Keppel Corp’s businesses even though there are current challenges in the oil and gas sector and the economy in general.

There are certain conditions to be met before the offer goes through, such as getting approvals from domestic and foreign regulators.

At a share price of S$5.84, Keppel Corp has a trailing price-to-earnings (PE) ratio of around 16 and a dividend yield of 3.9%. At the offer price of S$7.35, the PE ratio goes up to 21, which could be attractive for investors to exit the business and deploy their funds into other more promising companies.

Is the Temasek offer a good deal for you? Discuss more in the Q&A discussion below!

The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock.