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Keppel Corporation SWOT & PESTLE Analysis

ID : 5264053 | May 2017

OVERVIEW

Name of the Company: Keppel Corporation

Business Sector: Shipping, Marine Property and Infrastructure

Operating Geography: Singapore

About the Company: Keppel Corporation, also known as Keppel Corp is one the world’s largest rig building corporations. It was founded by Temasek Holdings in 1968. Based out of Singapore, it has four main businesses – Offshore & Marine, Infrastructure, Property and Investments which give it diverse portfolio and effective risk management. The company had a 32% rise in Net Profits in the 3rd Quarter of 2013. It has an approx. of 40,000 employees (2013).

Revenue: SG $6,767 million - FY16

SWOT & PESTLE Analysis

The SWOT Analysis for Keppel Corporation is given below:
Strengths
Weaknesses
1. One of the largest builders of oil rigs
2. Elaborate sustainability framework
3. Strong investor relations policy
4. Effective talent management structure
1. Major chunk of revenue generated from Singapore only
2. Decreased revenue from ASEAN countries
Opportunities
Threats
1. Acquisitions
2. 90% of Keppel Land owned by Keppel Corp
3. Growth in Myanmar
1. Falling oil prices
2. Growing competition
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Strengths

1. One of the largest builders of oil rigs: Keppel Offshore & Marine (Keppel O&M) is concerned with design of offshore rigs, their repair and construction, ship conversion, ship repair and most importantly, specialised shipbuilding. It has 20 shipyards and offices spread across the world. This presence enables them to be close to potential markets if and when the need arises.

Keppel FELS is the headquarters of the offshore division of the company. It specializes in building high-performance offshore rigs. Keppel FELS’ portfolio of designs and production solutions meets demand for a wide range of operating requirements, from deep waters to hostile environments.

The Marine division, maintained by Keppel Shipyard, is in the business of repairing a myriad range of different designs of ships and vessels. The division leads in Offloading and Floating Production Storage conversions, Storage and Re-gasification Units.

The Specialised Shipbuilding division of Keppel Corp is led by Keppel Singmarine. It specializes in building customised vessels, multi-purpose Offshore Support Vessels and tugboats. It also provides advanced solutions to ship-building like ice-capable vessels for worldwide use.

Together, these division create a strong portfolio of products and services that the company has the ability to offer to its customers.

2. Elaborate Sustainability Framework: The Company has an elaborate Sustainability Framework which has all the signs of helping Keppel Corp to sustain itself in the long term. The Framework has three main parameters – Sustaining Growth through resource efficiency and innovation, Empowering Lives through the company’s rich culture, vision and mission and Nurturing Communities to help growth thrive within the company. Thus, with a sustainable business outlook, Keppel Corp aims at growing and enriching lives – a strength in the long term.

3. Strong Investor Relations policy: Keppel Corp’s Investor Relations Policy help is draw in more investors and retain existing ones, thus ensuring a wide pool of source of funds. A few key points that help the company in this regard are:

- Submission of every disclosure to the Singapore Exchange Securities Trading Limited (“SGX-ST”) through SGXNET. The information of these disclosures is also available on the Company’s website.

- Transparency in communication with shareholders to enable them to take well-informed decisions.

- All communications are done through the Authorised Spokesperson of the company to avoid confusion and breed authenticity.

- The company encourages analysts and investors to effectively participate meetings with the Senior Management so that everyone can gain broader perspective on the topic of discussion and take better decisions.

4. Effective Talent Management Structure: The company has a very efficient Talent Management structure that enables young professionals to come up and produce fresh ideas before the senior management, which shall prove to be profitable for the organization in the long run. This effective use of young talent is rendered a strength for the company in order to sustain itself.

Weaknesses

1. Major chunk of revenue generated from Singapore only: As much as 57% of the company’s total revenue in 2013 has come from its Offshore & Marine Division. Keppel Corp’s main shipyards are in Brazil, The United States and Singapore itself. According to a report on analystreport.com, payments from Brazil were delayed due a corporate scandal. Thus, the major revenue it garnered was from Singapore itself, leaving globalised domination open to competition.

2. Decreased revenue from ASEAN countries: According to the same report on analystreport.com, Chinese shipyards provide offer better payment structures, more efficient financing and lower prices as compared to Keppel Corp. This has led to a fall in the company’s revenue from the ASEAN countries since they are utilizing the offers from the Chinese. Keppel Corp should take another look at its policies and bring about the required reforms in order to re-ensure their stronghold in the ASEAN market.

Opportunities

1. Acquisitions: Keppel owns a number of subsidiaries which provide it with the opportunity to diversify its business. In the offshore division, Keppel wholly owns 10 other subsidiaries in Singapore and outside, including Keppel AmFELS LLC in the United States, Keppel Verolme BV in The Netherlands and Keppel FELS Brasil SA in Brazil. It also has partially owns oil rigs and companies in Azerbaijan, UAE, Qatar, etc. thus, giving it ample opportunity to globalise its business in the offshore division.

The company owns international subsidiaries in its Property, Infrastructure and Investment divisions as well, giving it a wide range of options to expand its business if and when the need arises. Keppel recently acquired a data centre in Sydney, Intellicentre 2 for around $45 million.

2. 90% of Keppel Land owned by Keppel Corp: Keppel Land is the real estate subsidiary of Keppel Corp. It specializes in residential developments and “Investment-Grade Commercial Properties”, which allows Keppel Corp to maintain a firm hand in its property division. As of March 25, 2015, Keppel Corp acquired 90% shares of Keppel Land, and now, is thinking to de-list Keppel Land by completing the buy-out. This shall give Keppel Corp to dominate in the real-estate industry in a much stronger fashion.

3. Growth in Myanmar: Keppel Land, under Keppel Corp, is running the Sedona hotels in Mandalay and Yangon. According to Goh York Lin, President of Keppel Land Myanmar, Myanmar is at its nascent stage of economic growth. Thus, strategic investments in the different viable industries could result in long-term profits. He also states that Myanmar will play a key role in maintaining sustainable growth for the company. Myanmar welcomed as many as 3 million visitors in the year 2014. The country’s target for the upcoming year is expected to be around the 5 million mark, owing to the hike in foreign direct investment, which should bring in more business travellers. Myanmar has already witnessed a growth of 12% in the arrival of tourists, as compared to the same time last year (May ’15), with over and above 1 million visitors. Thus, this seems to be golden opportunity for Keppel Corp to capitalise on the growing economy of the country.

Threats

1. Falling oil prices: Fall in oil prices does not have any direct effect on Keppel Corp’s profitability. However, since its primary clientele is the business of oil and gas and a fall in oil prices as affected their business adversely, Keppel Corp has faced the shockwave as well. After peaking in mid-2014, the price of crude oil has fallen by as much as half, which in turn resulted in Keppel Corp seeing its shares lose as much as 18% of its share value since the June 2014. This is a rising concern for the company. They should thus take appropriate steps in diversification to minimize the loss risk in the coming years. Regulations by the OPEC countries on oil pricing has also had an adverse effect on the company’s share value.

2. Growing competition: Keppel Corp has one major competitor in Singapore itself, Sembcorp. Sembcorp also specializes in building oil rigs. However, the two till date have maintained ‘duopoly’ in Singapore. But growing competition in the local as well as global markets are increasing. Locally, Singapore Technologies Engineering Ltd. is catching up fast with the big two. Also, producers in China are providing better deals to clients in terms of more flexible payment options and lower prices. Although the emergence of this new market in China hasn’t been able to eat up much of Keppel Corp’s market share yet, it is only a matter of time before they are breathing done their necks.

Keppel Corporation SWOT analysis has been conducted and reviewed by senior analysts from Barakaat Consulting.
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The PESTLE Analysis for Keppel Corporation is given below:
Political
Economical
1. Amicable relations with the government
2. Political action committee
1. Fall in the price of crude oil
2. Reduction in its share values
Social
Technological
1.Undertaking CSR activities and promotes sustainable growth
2. Awarded for its work
1. Technology for sustainable growth
2. New innovations
Legal
Environmental
1. Land acquisitions and related issues1. Being more environmentally responsible
2. Implementing sustainable development
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Political

1. Amicable relations with the Government: The Singapore Government has supported Keppel Corp in most of its ventures since it sees economic growth of the country as a whole with Keppel Corp flourishing. Ocean Mineral Singapore Pte Ltd (OMS), majorly owned by Keppel Corp, recently entered into a 15-year contract for the exploration (associating with the International Seabed Authority (ISA)) of polymetallic nodules within the Clarion-Clipperton Fracture Zone of the Pacific Ocean. The project has been sponsored by the Singapore Government. Over the years, Keppel Corp has maintained amiable relations with the Singapore Government, making political donations and opening charitable trusts as a sign of their acknowledgment of the Government’s support towards their organization.

2. Political Action Committee: The company also has a Political Action Committee, which is dedicated to solving issues related to the political stand of the company, directly upholding Keppel’s vision, mission and practices. The company itself is controlled by the Singapore Government.

Economic

1. Fall in the price of crude oil: The Major economic factor that has affected Keppel Corp recently is the steep fall in the price of crude oil. Fueled by regulations by the OPEC countries, oil prices, after having peaked in the middle of 2014, has seen a stiff fall since, and is still falling. This has resulted in Keppel Corp’s major clientele to reduce business of constructing, repairing and maintaining large scale oil rigs for their offshore policies.

2. Reduction in its share values: Due to falling prices of crude oil the amount of transactions with the company have significantly reduced. The result – Keppel Corp’s share value has taken a toll and has fallen drastically.

Social

1. Undertaking CSR activities and promotes sustainable growth: This includes coping with the impact of the company on the society as a whole. To garner this towards success, Keppel Corp has made social investment contributions in the following fields:

- Programmes for the advancement and well-being of the underprivileged

- Community development projects to encourage social inclusion and social equality

- Educational initiatives like scholarships and financial assistance

- Initiatives to protect the environment, and working towards the enhancement of biodiversity in the local landscapes.

- Initiatives to encourage interest and appreciation of sports, arts, culture, etc.

- Healthcare, sanitation and medical benefits

2. Awarded for its work: Keppel Corp has won the President’s Award for Corporate Philanthropy for the work it has done for the social community.

Technological

1. Technology for sustainable growth: To ensure sustainable development, and one that is friendly for the environment, Keppel Corp looks at advances in technology. It aims at producing waste-to-energy plants, district cooling systems, green buildings, and offshore wind turbine installation vessels, all of which cater towards the use of the technology for sustainable growth.

2. New innovations: The KFELS Semisubmersible Drilling Tender, a latest technological advance by Keppel Corp is now being tested towards the possibility of it being a zero discharge vessel. This can prove to be very beneficial for the environment on the long run. The company’s efforts have also been highly acknowledged by the ‘Singapore Institution of Engineers Prestigious Engineering Achievement Awards’.

Legal

1. Land acquisitions and related issues: Keppel Corp’s major legal implications come from their real-estate subsidiary, Keppel Land, which has to cater to the land acquisitions laws placed by the Singapore Government. Now that Keppel Corp is on the verge of de-listing Keppel Land by buying of 95% of its stakes, it will be in direct talks with the Governments for issues related to land acquisition. Since Keppel Corp is also looking a Myanmar, legal implications from their Government will also need to be catered to.

Environmental

1. Being more environmentally responsible: Since the company believes in sustainable growth, Keppel Corp takes care to cater to the rising environmental concerns with a positive outlook. The most crucial step taken is the running of the business with an eye out for the environment. It is well-aligned with the company’s mission and vision and idea of sustainable growth.

2. Implementing sustainable development: Creating a business model for sustainable development, so that the environment is directly factored in to making and selling the products. With knowledge of climatic changes and the unraveled speed of urbanisation, the demand for sustainable environmental solutions is paramount. Keppel Corp looks to meet this demand with their advances in technology and innovative business ideas.

Keppel Corporation PESTLE analysis has been conducted and reviewed by senior analysts from Barakaat Consulting.
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