Blue-chip stocks are having a field day this year as the bellwether Straits Times Index (SGX: ^STI) hit a 17-year high recently.
However, two blue-chip stocks, Keppel Ltd (SGX: BN4) and Sembcorp Industries (SGX: U96), or SCI, displayed a lacklustre performance.
Keppel saw its share price dip by 6.8% year-to-date (YTD) while SCI’s share price has inched up just 1.9% YTD.
Both companies have detailed their long-term strategic plans in their Investor Day releases.
These initiatives should provide investors with the confidence that they can do well in the future.
So, which of these blue-chip stocks is a more compelling buy? We compare them across various financial metrics.
Financial performance
First, let’s look at each company’s financials for the first half of 2024 (1H 2024).
Keppel and SCI both saw year-on-year declines in revenue.
For Keppel, both its infrastructure and real estate divisions saw revenue fall by 10% and 44% year on year, respectively.
SCI saw its Gas and Related Services division post an 18% year on year fall in revenue that made up the bulk of the 12.3% year-on-year decline in group revenue.
Although both companies saw their net profit fall year on year, investors should be looking at their core net profit which excludes both discontinued operations and exceptional items.
If we look at core net profit, Keppel managed to post a small 6.7% year on year increase to S$513 million.
Winner: Keppel
Financial strength
Next, we move on to each company’s balance sheet to explore their financial strength.
In doing so, we looked at Keppel and SCI’s net debt and compared it against shareholder equity and total assets.
Although Keppel had a higher overall net debt of S$10.2 billion compared with SCI’s S$7.2 billion, its net debt metrics looked healthier.
Keppel’s net debt to equity (net gearing) came in just below one while its net debt to total assets stood at 0.37.
These two metrics were lower than SCI which had net gearing at 1.42 times and net debt to total assets of 0.41.
Winner: Keppel
Cash flow generation
The next metrics we look at is each company’s cash flow generation ability.
For Keppel, its operating cash flow come in negative for 1H 2024.
When capital expenditure (capex) is accounted for, the asset manager churned out a negative free cash flow of S$423.6 million.
SCI managed to generate an operating cash inflow of S$517 million.
Capex, however, came in at S$568 million and caused the utility giant to turn in a negative free cash flow of S$51 million.
With both companies posting negative free cash flow, we favour the one that managed to at least generate a positive operating cash flow.
Winner: SCI
Dividends and dividend yield
Finally, we come to the section that should interest income investors – dividends.
Keppel paid out a trailing 12-month dividend of S$0.34 which gave its shares a trailing dividend yield of 5.2%.
However, its interim dividend of S$0.15 remained unchanged from a year ago.
SCI, on the other hand, paid out a trailing 12-month dividend of S$0.14 which gave its shares a much lower trailing dividend yield of 2.6%, half of what Keppel’s shares are sporting.
However, the utility group did manage to raise its interim dividend by an impressive 20% year on year.
That said, we will prefer Keppel as its dividend yield is significantly higher than SCI, and the asset manager also could raise its dividends in future even if management did not do so this round.
Winner: Keppel
Investor Day round-ups
Other than the above financial metrics, investors can also weigh each business based on its Investor Day targets.
The 1H 2024 results serve as a convenient checkpoint to gauge each company’s progress towards attaining its goals.
Keppel reported good progress towards its Vision 2030 goals with its asset management earnings more than doubling year on year to S$75 million in 1H 2024.
Its funds under management also grew by 55% from the end of 2023 till 1H 2024, aided by the acquisition of Aermont Capital.
Asset monetisations have also hit more than S$5.6 billion since October 2020.
SCI is also making healthy progress towards its 2028 goals that it set back during last year’s Investor Day.
Its renewables gross installed capacity hit 14.4 GW as of June 2024, more than halfway towards its target of 25 GW by 2028.
SCI also announced a new urban strategy just last month to increase its land for development to 18,000 hectares by 2028 (current: 14,000 hectares) and achieve an industrial property gross floor area of 1.5 million square metres (current: ~130,000 square metres).
Get Smart: Keppel emerges as the winner
After weighing the pros and cons of each company, Keppel emerges as the winner.
Keppel managed to eke out a small year-on-year rise in its core net profit and is also more conservatively financed compared with SCI.
Although the asset manager generated negative free cash flow, it managed to increase its funds under management and recurring income and is also making good progress on its asset monetisation efforts.
Furthermore, Keppel kept its interim dividend constant and its shares provide a high dividend yield of 5.2%.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
