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A very good evening, ladies and gentlemen. We welcome all of you, including those viewing this confidence over the web, to the conference for Keppel Corporation's second quarter and first half financial results for 2018. First, let me introduce the members of our panel. Seated from your left to right are: Mr. Thomas Pang, Chief Executive Officer of Keppel Telecommunications & Transportation; Mr. Chris Ong, Chief Executive Officer of Keppel Offshore & Marine; Mr. Chan Hon Chew, Chief Financial Officer of Keppel Corporation; Mr. Loh Chin Hua, Chief Executive Officer of Keppel Corporation and concurrently Executive Chairman of Keppel Land; Dr. Ong Tiong Guan, Chief Executive Officer of Keppel Infrastructure; and Ms. Christina Tan, Chief Executive Officer of Keppel Capital. Our CEO, Mr. Loh Chin Hua, will first present the group's business review and outlook. Thereafter, our CFO, Mr. Chan Hon Chew, will present the group's financial results. This will be followed by a question-and-answer session on the company's performance chaired by Mr. Loh.
Without further ado, I would like to invite Mr. Loh Chin Hua to give his opening a remarks. Mr. Loh, please.
Thank you, Ariel. Good evening, and welcome to the conference and webcast on our results and performance in the second quarter and first half of 2018. The 3rd of August will mark Keppel Corporation's 50th anniversary. Over the past 5 decades, starting from a small shipyard, the group has expanded, diversified and transformed itself as we seized opportunities and overcame myriad challenges in our growth journey. Today, Keppel is an ecosystem of companies working closely together to provide solutions for sustainable urbanization. Whether it is the search for energy through our rigs and vessels, the provision of solutions for gas or renewables, reliable infrastructure such as power, waste or energy or water treatment plants, high-quality built environments or physical and digital connectivity, Keppel is well-placed to meet the markets' needs. Our multi-business strategy and geographical diversification have enabled the company to remain resilient despite cyclical headwinds in some of our businesses.
For the first 6 months of 2018, we achieved a net profit of $583 million, an increase of 38% compared to the same period in 2017. Our group continued to deliver strong results in the first half of 2018 despite continuing challenges in the O&M business. Economic value added for the period was $275 million. On an annualized basis, our return on equity was 9.9%. We had free cash inflow of $886 million in first half 2018 compared to the inflow of $204 million in first half 2017. Our net gearing was 0.4 at end June 2018 versus 0.46 at end December 2017. We paid out $254 million cash to shareholders in May 2018 as the final dividend for financial year 2017.
Taking into account the group's better performance, including the improvement in our cash flow and net gearing, the board has approved an interim dividend of $0.10 per share for first half 2018, higher than the $0.08 per share for the first half of 2017. In addition, to thank shareholders for their trust and support on the occasion of Keppel Corporation's 50th anniversary, we'll be giving out a special dividend of $0.05 per share. The interim dividend and special dividend will be paid out to shareholders on 7th August 2018.
We remain focused on improving the overall quality of our earnings. Recurring income contributed $130 million or 22% of our net profit in first half 2018. There's growing optimism in the O&M industry with Brent crude prices hovering above USD 70 per barrel. However, the rig market continues to be weighed down by a supply overhang. Rig utilization has improved, but day rates have remained stagnant. Nevertheless, in regions such as the U.K. sector of the North Sea, the Middle East and Southeast Asia, we are seeing more rig tender activities.
In Brazil and Mexico, international oil companies are also expected to increase investments in the oil and gas sector. There's also been an increase in the number of floating production projects awarded over the past year. In June this year, the EMA estimated that there are 235 projects in various stages of study potentially requiring a floating production of storage system. Of these, 62 are in the bidding of final design stage. In short, the recovery of the O&M sector is expected to continue but at an incremental pace.
Against a challenging backdrop, our O&M Division made a net loss of $40 million compared to a net profit of $11 million in the first half of 2017. This was mainly due to lower work volume, lower contributions from associated companies and higher taxes in overseas operations. Keppel O&M has significantly reduced its overheads in the last few years due to the extensive rightsizing it has undertaken. This has helped the company achieve an operating profit of $14 million in first half 2018 in spite of the lower volume of work. As at end June 2018, we have secured over $1.2 billion of new orders, slightly more than the new orders secured for the whole of 2017. In the second quarter of 2018 alone, we clinched $680 million worth of contracts. The new contracts secured were for 2 new jackups for Borr Drilling as part of a 5-rig deal worth a total of USD 745 million, 2 dual-fuel dredgers for Van Oord, a dual-fuel bunker tanker for Sinanju as well as an LNG bunkering vessel for FueLNG, our joint venture with Shell. Keppel O&M's net order book was $4.6 billion as at end June 2018, excluding our projects for Sete Brasil, compared to $3.9 billion as at 31st December 2017. This is the first time since 2014 that Keppel O&M's net order book has risen for 2 consecutive quarters. In the first 6 months of 2018, Keppel O&M delivered an FPSO, a dual-fuel LNG tug and 2 jackups to Borr. Hilli Episeyo, the world's first converted floating liquefaction vessel, which Keppel developed in partnership with Golar, has commenced full commercial operation in offshore Cameroon. This has resulted in increasing market confidence in the conversion approach, which adds value with its faster time to first LNG production and competitive pricing. Since 2015, we have won about $1.8 billion of orders for our gas solutions, making up about 38% of all new orders. With our ability to design, develop and integrate solutions across the gas value chain, Keppel aims to be the gas industry's preferred partner. The growing adoption of LNG as a marine fuel, driving demand for newbuilds, conversions and upgrades, also augurs well for the business. The division is also actively seeking opportunities in production assets, specialized vessels, gas solutions, floating infrastructure and offshore renewables.
Our Property Division made a net profit of $603 million for first half 2018, more than 3x the $192 million achieved in first half 2017, underpinned by en bloc sales as well as higher contributions from home sales in Singapore and China.
In line with our capital recycling strategy, Keppel Land announced the sale of 2 residential developments en bloc in Shenyang and a stake in Quoc Loc Phat Joint Stock Company in Vietnam for a total consideration of $350 million. We also announced the divestment of a commercial project in Beijing for a consideration of $396 million. The option is expected to be exercised in the third quarter 2018.
In the first half of 2018, our Property Division sold about 1,420 homes with a total sales value of about $770 million. These include 800 homes in China and 130 in Singapore. The property market in Vietnam remains promising, and we expect more homes to be sold in Ho Chi Minh City as new projects are launched later this year. We have also received positive response in other markets such as Indonesia and India, where we sold 150 and 225 homes, respectively. Over and above these home sales, we also sold 3 residential projects in Zhongshan and Shenyang in first half 2018, which are equivalent to another 11,100 homes sold en bloc. We expect to recognize profits from the sale of some 6,900 units of overseas homes worth about $2.4 billion, to be recognized through completion, from third quarter 2018 through 2021. In our residential pipeline, we have about 50,000 homes, of which over 16,000 are ready for launch from now until end 2020. In our commercial portfolio, we have about 1.5 million square meters of gross floor area, about 2/3 of which are under development. As the commercial projects are progressively completed, they will provide steady recurring income for the group.
For over 20 years, the group has expanded regionally and invested in key Asian markets. In some cities, we enjoy a first-mover advantage and have built up a sizable land bank. We are in an enviable position where we have many options across a number of markets, which helps us mitigate the impact of cooling measures, whether in China or Singapore.
China and Vietnam are key markets for the company, where rapid urbanization and a fast-growing middle class are driving demand for high-quality homes. In the past few years, we have focused our attention on 5 key cities in China, namely Beijing, Shanghai, Tianjin, Wuxi and Chengdu. Riding on our experience and track record in these cities, we intend to expand our presence in the Jing-Jin-Ji region, with Beijing and Tianjin as focused cities, the Yangtze River Delta region with Shanghai and Wuxi as focus cities and in the growing Chengdu metropolis. We are also actively exploring opportunities in the Greater Bay Area with Guangzhou and Shenzhen as focus cities. Over in Ho Chi Minh City, Vietnam, we will also explore opportunities along the eastern and southern corridors, which are supported by infrastructure investments. We'll continue our efforts to achieve faster asset turns. Keppel Land is evolving to become a multi-faceted developer that is not just focused on acquiring land and building homes, but also on developing a sterling portfolio of commercial properties. We may also acquire completed assets which are cash flow generating and add value through asset enhancement.
The Infrastructure Division continues to grow as a steady pillar of earnings. It achieved a net profit of $66 million, up 16% year-on-year, mainly due to the dilution gain following Keppel DC REIT's private placement exercise as well as higher contributions from Environmental Infrastructure and Infrastructure Services. The new projects under development are making steady progress. KMEDP, for which Keppel Infrastructure has a 25-year Water Purchase Agreement with the PUB, is close to 50% completed; while HKIWMF is in the design and engineering phase and is expected to contribute to our bottom line starting from next year.
Stable and recurring income from Infrastructure Services contributed revenue of about $70 million in the first half of 2018. This is expected to grow further with the commencement of long-term operations and maintenance contracts for the KMEDP in 2020 and HKIWMF in 2024.
On our Data Centre business, several deals are in the pipeline and we will share details when they are finalized.
Our Investment Division made a net loss of $46 million for first half 2018 compared to a net profit of $163 million in the same period last year as a result of the share of losses from associated companies and fair value losses on investments. Unlike in first half 2017, there have been no land sales in the Sino-Singapore Tianjin Eco-City so far this year.
Keppel Capital continues to provide steady contributions to the group and to seek opportunities to expand its asset classes and investor base, focusing on areas which harness the capabilities of the Keppel Group. Meanwhile, Keppel DC REIT has acquired Keppel DC Singapore 5, which will boost its footprint in Singapore to nearly 300,000 square feet of aggregate lettable area. With this addition, Keppel DC REIT's assets under management will increase to approximately $1.94 billion with 15 data centers across Asia Pacific and Europe.
The first half of 2018 also saw us actively pursue opportunities to advance our integrated master development business under Keppel Urban Solutions. In April, Keppel Corporation signed an MOU with Filinvest Development Corporation to explore cooperation opportunities in the latter's smart and sustainable urban development projects in the Philippines. To expand its suite of solutions, Keppel Urban Solutions also signed an MOU with Singapore Technologies Engineering last week to leverage each other's expertise and resources in the design and application of smart city master plans and technologies. This includes the customization and application of ST Engineering's solutions in Saigon Sports City in Ho Chi Minh City. Beginning with Vietnam, where Keppel has a strong presence and track record, the partnership may also be extended to other markets.
This year, we are also celebrating the 10th anniversary of the Sino-Singapore Tianjin Eco-City. During his visit to the Eco-City earlier this month, Singapore's Deputy Prime Minister Teo Chee Hean witnessed the launch of the city center, which marks a new face in the development of the Eco-City. With growing economic vibrancy and a wider range of amenities, we expect the Eco-City to become increasingly attractive, both to companies and residents, and to continue being a long-term contributor to the Keppel Group. Our joint venture, SSTEC, expects to continue land sales in the second half of the year to meet the strong demand for homes in the Eco-City.
To conclude, the Keppel Group is working hard to seize opportunities, not just through growing each vertical, but also through close collaboration between our business units as we provide solutions to meet the needs of sustainable urbanization. Reflecting our commitment to not only do well, but also to do good, Keppel Corporation became a signatory of the UN Global Compact in May. We have also made a public pledge on the actions that the group will take to address climate change. We are determined to have a positive impact on the community wherever we operate. This is how Keppel is forging ahead and shaping the future.
I shall now invite our CFO, Hon Chew, to take you through the group's financial performance. Thank you.
Thank you, Chin Hua, and a very good evening to all. I shall now take you through the group's financial performance. In the second quarter of 2018, the group recorded net profit of $246 million, which was 44% higher than the same quarter last year. Correspondingly, earnings per share increased to $0.136, and EVA was a positive $89 million compared to a negative $34 million in the same quarter last year.
Next, the summary group profit and loss statement. The group's revenue for the second quarter was 2% or $31 million lower than the same quarter last year. Lower revenues from Property and Investments Divisions were partially offset by higher revenues from Offshore & Marine and Infrastructure Divisions. Despite lower revenues, the group operating profit for the quarter increased by 72% or $108 million to $257 million, boosted by en bloc sales of development projects in China and Vietnam. Profit before tax at $281 million, however, increased by a lower margin of 31%, due mainly to lower share of profits from associates.
After tax and noncontrolling interests, net profit was 44% higher at $246 million, translating to an earnings per share of $0.136.
In the next slide, we take a closer look at the group's revenues by division. In the second quarter of 2018, the group earned total revenues of $1.52 billion, 2% lower than the same quarter last year.
The Offshore & Marine Division reported a 35% increase in its top line as a result of revenue recognition in relation to the jackup rigs sold to Borr Drilling Limited, partially offset by lower volume of work.
Revenue from Property Division saw a 55% decline due to lower revenues from China projects, Corals at Keppel Bay and Highline Residences, which has been sold out, as well as the absence of revenue from The Glades as compared to the same quarter last year.
Infrastructure Division achieved a 24% growth in revenue as a result of increased sales in the power and gas business and progressive recognition of revenue from the Keppel Marina East Desalination Plant project.
Moving on to the group's pretax profit. The group recorded $281 million of pretax profit for the second quarter of 2018, 31% higher than last year. The Offshore & Marine division's pretax loss was $11 million as compared to $15 million profit in the same quarter in 2017. This was due mainly to low operating profits, partially offset by higher share of associated companies' profits and lower net interest expense. Also, last year, Offshore & Marine's pretax profit benefited from a $12.6 million gain on divestment of Keppel Verolme.
The Property Division registered $122 million increase in pretax profit due mainly to en bloc sales of development projects, namely The Seasons in Shenyang, Hunnan project in Shenyang and Quoc Loc Phat Joint Stock Company which holds land in Thu Thiem New Urban Area in Ho Chi Minh City and the fair value gain on Nassim Woods, which has been designated for redevelopment for sale. These are partially offset by lower contribution from property trading projects.
Infrastructure Division reported a 26% increase in pretax profit due mainly to dilution gain following the change of interest in Keppel DC REIT and the higher contributions from Environmental Infrastructure and Infrastructure Services, partly offset by the lower contribution from energy infrastructure and share of loss at Keppel Infrastructure Trust.
Investments Division recorded $39 million decrease in pretax profit due to share of losses from associated companies in the current period as compared to the share of profit in the same quarter last year.
After tax and noncontrolling interests, the group's net profit increased by 44% or $75 million, with Property Division being the top contributor to the group's earnings, followed by Infrastructure Division.
I shall now take you through the performance for the first half of 2018. Compared to the same period last year, net profit for the first 6 months was 38% higher at $583 million. Earnings per share increased by the same extent, $0.322. Annualized ROE also increased to 9.9%, while EVA was higher at $275 million. Free cash flow for the period was an inflow of $886 million compared to an inflow of $204 million in the first half of 2017. This is due mainly to proceeds from the en bloc sales of development properties.
Consequently, net gearing improved from 0.6x (sic) [ 0.46x ] at the end of 2017 to 0.4x at the end of 2018. We're pleased to announce an interim cash dividend of $0.10 per share for this year as well as a special cash dividend of $0.05 per share to commemorate Keppel's 50th anniversary since its incorporation.
Next, the summary group profit and loss statement. The group earned a total revenue of almost $3 billion in the first half 2018, an increase of 7% or $191 million compared to the same period last year. Higher revenues from Offshore & Marine and Infrastructure Divisions were partially offset by lower revenues from Property and Investment Divisions. Operating profit at $725 million was 118% or $392 million higher than the corresponding period last year. Higher profits recorded in Property and Infrastructure Divisions were partially offset by lower profits from Offshore & Marine and Investment Divisions. Profit before tax at $711 million, however, increased by a lower margin of 41% due mainly to lower share of profits from associates. In the first half of last year, the group benefited from the Sino-Singapore Tianjin Eco-City sale of 3 land parcels as well as the share of gains from the divestment of stakes in property trading projects in China. After tax and noncontrolling interests, net profit was 38% higher at $583 million. Similarly, earnings per share increased by 38% to $0.322.
In the next slide, we take a closer look at the group's revenues by division. For the first half of 2018, the group earned total revenues of close to $3 billion, 7% higher than last year. Offshore & Marine recorded an increase in revenue due mainly to revenue recognition in relation to the jackup rigs sold to Borr Drilling Limited, partially offset by lower volume of work. Property revenues dropped by 2% due mainly to lower revenue from hotels and resorts as well as the property services segments.
Infrastructure revenues increased by 23%, led by increased sales in power and gas business and progressive revenue recognition from the Keppel Marina East Desalination Plant.
Moving on to the group's pretax profit. The group recorded a pretax profit of $711 million for the first half of 2018, 41% higher than the same period last year. This was despite Offshore & Marine Division registering pretax losses of $26 million as compared to pretax profit of $13 million last year, arising from lower operating profits and lower contribution from associated companies. As noted earlier, Offshore & Marine's pretax profit last year also benefited from a $12.6 million gain on divestment of Keppel Verolme. The division's operating margin for the first 6 months was 1.5% compared to 3.5% in the same period last year.
In the Property Division, pretax profit increased by 198% due mainly to en bloc sale of development projects in China and Vietnam, fair value gain on Nassim Woods which has been designated for redevelopment for sale, as well as higher contributions from property trading projects. The increase was partially offset by lower share of profits from associates.
Pretax profit from Infrastructure Division was relatively stable at $74 million.
Investments Division registered a pretax loss of $35 million as compared to a pretax profit of $185 million last year as a result of the absence of the write-back of provision for impairment of investment and the share of losses of associated companies in the first 6 months of 2018 as compared to the share of profits in the same period last year. This was mainly due to the absence of sale of 3 land parcels in the Sino-Singapore Tianjin Eco-City. After tax and noncontrolling interests, the group's earnings increased by 38% or -- to $583 million, with the Property Division being the top contributor to the group's earnings, followed by Infrastructure. The group's net profit of $583 million for the first half of 2018 translated to an earnings per share of $0.322. In this first half 2018, our annualized ROE increased to 9.9%. As mentioned earlier, our interim and special cash contributions to our shareholders for the period will be $0.10 per share and $0.05 per share, respectively.
Cash flow from operations was $325 million in the first 6 months of the year, up from $245 million in the same period last year. After accounting for working capital changes, interest and tax, net cash inflow from operating activities was $357 million as compared to an inflow of $127 million last year, due mainly to lower working capital requirements in the Offshore & Marine Division. Net cash generated from investing activities amounted to $529 million, comprising divestment proceeds and dividend income from associated companies totaling $833 million, partially offset by net repayment of the advances from associated companies of $239 million. As a result, there was an overall cash inflow of $886 million for the first half of 2018 as compared to an inflow of 203 -- $204 million last year.
With that, we have come to the end of the results presentation segment, and I shall hand the time back to our CEO, Mr. Loh Chin Hua, for the Q&A section. Thank you.
Thanks, Hon Chew. So we come to the Q&A section. As was explained earlier by my colleague, if you could, please raise your hands, state your name and we're happy to answer any questions that you might have. For those of you who are watching online, we're also happy to take questions from the net, but let me start with those who has -- who are present with us today.
Any questions from the room? Yes, Gerald?
Gerald from Crédit Suisse. Two questions from me. Number one, on the Property Division, are there any changes to your plans for the residential launch pipeline given the recent property cooling measures? Noticed that you recognized a gain on the redevelopment of Nassim Woods. Secondly, on the Offshore & Marine Division, are you seeing more inquiries for your FLNG conversion solution after the delivery of the first unit? And also, any updates on the second and third unit?
Thank you for the 2 questions, Gerald. I will take the first question, and I will ask Chris to start thinking about how he answers the second question. I think the property cooling measures that has been announced, I think, last week, that is still playing itself out. We do expect that there will be an impact on the sentiments in the market. We have a couple of properties that are in our land bank. You mentioned Nassim Woods. We also have Keppel Bay Towers. These are redevelopment projects. So actually, we do have some optionality in terms of when we choose to launch. I think it's too soon to make any comments on whether we will change those plans but, clearly, we are watching to see how the market develops. As I mentioned, we do have some optionalities in terms of when we choose to launch. So we will monitor the market closely. Chris?
Okay, to answer the question on the inquiry for FLNGs, I think Hilli achieving first gas has created confidence and interest in the conversion solution in the market. I think that has literally taken out the technical risk in the solution itself. As for the other 2, Gandria and GIMI, for Gandria, the notice to proceed has been extended to end of the year for Golar and Ophir to look for alternative investors. In the meantime, the ship is in the yard, and we are doing some preparatory works. For GIMI itself, we are working closely with Golar and BP, and we expect the notice to proceed by end of the year.
I think maybe just to add to what Chris has said. I think the commercial operation for Hilli has given the market, as I mentioned in my remarks, a lot of confidence. So we're quite -- we are very confident that this FLNG conversion market would be a very attractive one for KOM. Yes, Siew Khee?
Siew Khee from CIMB. Can you tell us how much is the Nassim Woods fair value gain? My second question is, would you be able to, Hon Chew, tell us the contribution from Singapore and China towards your Property Division? And I think you mentioned that there's some weakness in property trading. So specifically, in which cities in China, if I assume that the weakness is in China?
Maybe on the first question, I'll ask Hon Chew to address.
Yes. The fair value gain on Nassim Woods upon the designation of the land for redevelopment is $48 million.
So I think if you look at the sales in the first half of this year, we saw about 800 units in China. This compares to first half 2017 of about 1,750 units thereabouts. So there's clearly a reduction. But we expect that in the second half, as we put a number of our projects to ready to launch, hopefully, we'll be able to pick up more sales. I think the cooling measures has had an impact but it has affected our markets differently. Most of the markets that Keppel Land China are active in where we have projects, the demand-supply fundamentals are still quite positive. Most of these markets would have supply days, usually about less than 2 years of demand. So we still very -- we are still very positive on the fundamentals. But of course, in many of these markets, there will be cooling measures that we will have to deal with. And I think this is an advantage that Keppel Land has, that in the course of the last 2.5 decades, through our regional drive, we have built up a lot of capabilities in different markets. As markets increasingly become subject to potential policy risk and market conditions change, some windows for markets will open, some will close. So Keppel, through our experienced team locally in countries like China, Vietnam, Indonesia, Singapore, to name just a few, gives us optionality in terms of where we invest and where do we launch our projects. I see a hand, sorry, I can't see you. The gentleman, yes.
This is Donald from Merrill Lynch. I have 3 questions, so please bear with me. The first question is a follow-up on the Nassim Woods. Could you, after the reval gain, what is the implied land cost for Nassim Woods now? I assume also factoring in the potential [ DP ] to lift up the lease back to 99 years. That's the first question. The second question is on the Beijing commercial property sale. Has this been factored into the second quarter results? And if not, what's the rationale for selling this Beijing commercial development since it's still under development? Why not hold it for recurring income? And how much gains are we expecting in terms of IRR, cap rates, et cetera? The third question is a broader one on capital allocation. With balance sheet now stronger, gearing is down, where are we looking at in terms of allocation? Is it more on the real estate side or other segments? And if it's on the real estate side, which areas are we looking at?
Well, you have quite a number of very big questions. We'll try to -- I'll try to address some of them. I think on Nassim Woods revaluation, this is part of our activation of this site, to turn it into a land bank from where it was as a rental apartment. But as I shared earlier, we do have some optionality in terms of the timing, so we'll watch the market. I can't disclose what the land value is based on the valuation. All I can see is that we generally tend to be a little bit more prudent in how we revalue so that we don't get ourselves into a pickle. As far as Beijing IDA concerned, it is not factored into the second quarter's results. We have a signed option with the buyer and there's a significant deposit that has been paid that is nonrefundable. But -- so we would expect the option to be exercised sometime in the third quarter. Good question, I think it's a -- Beijing IDA is a -- in a very prime location near the Third Ring Road on the eastern side of Beijing. Ordinarily, we would have liked to keep it for the long term for recurring income, but this is a project that has also seen quite a lot of challenges for us to execute. And I think, in the best interest of the partnership, we thought it might be best that we sell. And of course, in the process, I think we have been fairly well compensated. I'm not sure, have we disclosed the profits? Did we disclose? We did. Do you? Sorry? Okay. The profit was disclosed. Of course, this is subject to the deal being done. When we signed the option, I think in the second quarter when we made the announcement, I think the profit -- expected profit is [ $114 million ] after-tax, yes? In terms of capital allocation, I think as a group, we do not generally do allocation top-down. That can be dangerous. Of course, we have a general sense of where we -- what we wanted -- where we want to see our balance sheet being deployed. We tend to look at things more bottoms up, to see where are the best deals for the group that can provide the best risk-adjusted returns. I think we do see a lot of opportunities or continue to see opportunities in the property side. We can replenish some of our land bank where it makes sense, when it makes sense. We can also look at opportunities in the infrastructure side, at Infrastructure Division. I think with urbanization, there's a lot of requirements for different urbanization solutions. And of course, we also have opportunities in Keppel Capital. But Keppel Capital will be a bit less capital intensive. Those, we tend to work with third-party investors. Okay? Yes, sir?
I'm Zhiwei from UOB. I have 2 questions and the first one on Property, second one on Tianjin Eco-City. For Property, I noticed that your quarterly revenue run rate has actually declined to about $200 million this quarter. Historically, your run rate was about $400 million, $500 million. And then if you were to exclude your one-off gains in the Property segment, your core profit for Property is about $48 million, which is also a quarterly decline. So with bearing all this in mind, how should we think about Property for the future? That's the first question. Second question is on Tianjin Eco-City assets, TEC to be specific. There were no land sales, and I understand from the local media that it was because there were no bids received. Now so would you be lowering your bid in order to secure sales this year?
Okay. On the Property side, we look at the entire picture and -- so that would include the en bloc sales because this, I think I mentioned before, this tend to be more opportunistic. We can choose to sell the units one by one or we could, where the opportunity arise, sell the project en bloc. So to us, there is also a sale. So we don't see that as a onetime gain. Of course, it is a bit more lumpier compared to a unit-by-unit sale. But just to be clear, even when we do unit-by-unit sale, I'm sure you are all well aware, for projects that are accounted for by the completion method, the reality of it is that it will still be lumpy. Meaning, at the end, we can only, assuming that we sell out during construction, we can only recognize the revenue and the gain when the project is completed. So in that sense, from a financial point of view, there's very little difference. The only difference, of course, is we can't just rely on en bloc sales all the time. We still have to continue to look at property launches and selling the units the traditional way. On TEC, I think I had mentioned earlier that most of the markets that Keppel is involved in, in China, the supply/demand fundamentals are actually quite attractive despite all the cooling measures. And TEC is a very good example because the Tianjin Eco-City is now more mature, connectivity has improved. This year is the 10th year. Connectivity, as I mentioned, has improved. The amenities is also now quite broad, quite wide. So it offers quite a nice environment for residents. Tianjin Eco-City is probably one of those markets that are quite -- considered quite healthy. If you look at the supply-demand fundamentals, if you look at the land sales, land had been sold, land that is ready to be launched or projects that are ready to be launched, including the land sites that have been sold so far, the supply side represents about 1.2x years in terms of demand requirement. So we think that there will be good opportunities for us to continue to sell land in Tianjin Eco-City. As I mentioned in my remarks, we are expecting to launch -- or SSTEC is expecting to launch some land sales in the second half. But I also shared last year, I think when we made our quite good profits, that Tianjin Eco-City is going to be a long-term contributor to the group, but it will be lumpy because the profits that will be realized, again, it will be done whenever we sell land. And it doesn't mean that every quarter, we will have land for sale. So it will be lumpy. You have a follow-up question?
Yes sir, I do. So to put it another way, last year, you were talking about the Tianjin Eco land -- TEC land sales and how it could be potentially recurring. So given its lumpiness, should -- conservatively, should we think of it as more of a less recurring nature?
I don't think that we ever put it that it is a recurring type of business. It will not be the same as what TG has in terms of operations and maintenance in the Infrastructure Division where it is a regular stream of cash flow or what Christina can generate in terms of asset management fees, which are also recurring in nature. But the basic business model of Tianjin Eco-City is that you will derive profit from generally 2 sources. One would be self-developments. So they will be like developing, and they will sell properties like Keppel Land China would, either by themselves or in joint venture with partners. So that would provide profit in development profit. The second part, which is equally important, is you will sell land. And when you sell lands to other developers, you will recognize the profit when the land has been sold. Maybe you want to give a chance to the others, okay? Yes?
It's Conrad from Macquarie. Maybe just following up on the recurring income issue. It was -- it looks like it was down from $150 million to $130 million, half-over-half. Any reasons to be concerned about that? Can we make up some of the difference in the second half? Are there some trends there that need to be called out maybe to explain the decline? On the Borr revenues that were recognized, I think in the second quarter, were those -- was there any margin on those revenues or were those 0 margin type revenues? Just trying to understand the accounting there. And then maybe just to follow up on the Tianjin Eco-City. Was it a case in the first half that you had land for sale and you just couldn't get the price that you wanted and now you're relaunching that in the second half at a lower price? I think that was the essence of the question asked before.
Okay, I'll ask Hon Chew to answer the first 2 questions.
Okay. The first question, I believe, is on recurring income that dropped from $130 (sic) [$150] million to $150 (sic) [$130] million. The drop is largely on the O&M side. As you know, I think the O&M business is -- has been facing quite a bit of headwinds. So that includes companies like flotels. So the drop in the recurring income is actually mainly the drop in our share of profit in flotel. So in terms of the underlying business, the number of vessels that are actually on charter this year is 3 compared to 4 last year. Second question?
Was on the recurring income, the drop.
Yes, I just answered the recurring income. Yes.
Okay. Then the second one was on Borr, whether it...
Okay. Borr is, I think, during the quarter, we announced the sale of 5 rigs. Those 5 rigs were actually sold at close to breakeven. Yes, so that's why if you look at the revenue, it has gone up by quite a lot compared to last year, especially in the second quarter. But the revenues actually, if you look at the margin, is actually close to breakeven.
Okay. On your question on Tianjin Eco-City, Conrad, it's a bit -- it's not so straightforward in terms of just tendering land for sale. I think because this is a -- our Chinese partner is a government-owned entity. There are some processes that we had to go through and that includes having a valuation done before the land can be put up for sale. So there was a site in the first half that was put up. But because the prices -- land sale prices in 2017 were quite high and there was expectation that the prices would even go higher than the last transacted price, so that piece of land was put up at a fairly high valuation. So as a result, that particular site did not attract any bids. But it does not mean that there are no interest, as I said earlier. Tianjin Eco-City is maturing quite nicely and the supply-demand dynamics are actually quite positive. There's a shortage of homes. There's a strong demand -- to meet the demand that we see there. So I'm quite confident that we will see land sales in the second half. Cheryl?
Cheryl from UBS. I have a couple of questions. Firstly, with regards to Infrastructure, could we get a sense of how much of the net profit was due to the dilution gains and how much is improved from contributions from the environmental business? And also some comments about what you see as a maybe sustainable or even growth level for the environmental business? The second question is with regards to O&M. Could we revisit the repair business and maybe give us an update of how we got -- what size it is right now? What kind of revenue run rates we are seeing and the kind of vessels which are being constructed? And just on the Property, could we just maybe get a total number that we can get a sense of, of the second quarter number? How much were all these gains on sales of the Shenyang sites, the Nassim Woods and the sale of the Vietnam investment company?
I think maybe just a quick one to answer your last question. I think the gains for the Shenyang, the 2 Shenyang site as well as the gains from the en bloc sales in Shenyang, the 2 Shenyang en bloc sales and the sale of the stake in Ho Chi Minh City for that development land in Thu Thiem, I think we can provide that to you. It's already disclosed, publicly disclosed. As I mentioned earlier, the Nassim Woods revaluation, did we disclose?
I guess. Just the Nassim Woods was $48 million...
$48 million.
Yes.
Sorry, just to clarify. So in the slides, right, you break it down between trading and investment property. So are they all sort of like where...
Where are they sitting?
Yes. And then on the Vietnam site, you basically you announced it in 2 tranches. There was a first sale, then a second sale, but the second announcement was after the end of the quarter. So just to clarify that, that one also hasn't -- the gains on that hasn't been put in, is that correct?
I think the gains for the Vietnam one was put in the net profit, or the net gains that was put in the second quarter, I believe.
Yes, that's correct.
And both the sale?
The whole, yes.
The whole thing.
I think you asked for the fair value gain. It's actually under the line, other operating income. It's actually disclosed also in the SGXNet. You see the fair value gain on investment property of $48.3 million in second quarter. So that's on the Page 2 of the SGXNet and that falls under the line item, other operating income.
Maybe can I suggest, Cheryl, is it okay you take it off-line with the team?
Yes, okay, yes.
Do you have -- oh, you had a question on O&M and repairs.
O&M and also Infrastructure.
Okay. Maybe I'll ask Chris to...
I think your question, I just want to be clear, the question is about what is the status of the repair business?
Yes.
I think the repair business still form a very staple type of workload within the yard. And I think that for this quarter itself, we see a gradual increase in the number of inquiries for repairs. And we think that the volume should be able to sustain as usual as a baseload. That's mainly on the shipping side. And for rigs, we do have a steady volume of upgrades in the yard. But that one will be a little bit more muted, depending on whether the rigs are going on contract by the clients itself.
May I just clarify, how much of your revenue roughly is from repair now?
We don't give breakdown.
We don't break that down in terms of different division, sorry.
So coming back, Cheryl, to your question on Infrastructure. The dilution gain from -- is about just under $20 million from the placement of new shares in Keppel DC REIT. On the Infrastructure side, we are seeing a very steady contribution from the Keppel Infrastructure as well starting to recognize EPC profits from the Marina Bay Desalination Plant, the Marina Desalination Plant. And we will expect that we will, as I mentioned in my speech, next year, with the Hong Kong IP, we will also start to recognize the EPC from next year. Then, of course, the point is that as each of these projects are completed and they go into long-term operations and maintenance phase, the O&M fees will keep on layering on top. Maybe I just ask TG to give an update on the 2 projects on their progress.
For the Marina East Desalination Plant, we are about 50% complete. And for Hong Kong projects, we will start to recognize the contributions starting from next year. But from the operations of the environmental and services, their operating income for the first half was very strong. We have contributed about additional $15 million compared to last year. But last year, remember, we had a onetime gain of $12 million from Keppel GE. So the variance is not as big but from the operating level, it's quite a significant improvement.
Maybe I'll take a question now from the web, just to give people in the room some time to think of the next question. First question is from Derrick Heng of Maybank Singapore. His question is, "How many land parcels will be put up for sale by SSTEC in second half 2018?" We generally don't disclose that. So as I mentioned, there will be plans by SSTEC to sell some land parcels in the second half. Okay, this is a question from Somesh Agarwal of HSBC Singapore. "Of the $225 million profit in the second quarter 2018 in the Property Division, how much came from en bloc sales? Also, this is the second question, "Also, of the overall $603 million in the first half 2018 in the Property Division, how much came from en bloc sales and fair value gain?" So maybe I think I give that to Hon here.
Okay. The first part of the question was for the second quarter. So the second quarter en bloc sales, as we mentioned, is from the 2 sites in Shenyang and one in Vietnam. So I think your question is on after-tax basis. So after-tax basis, the total is $111 million for the second quarter. As for the first half, this is also after-tax basis. En bloc sales, of course, first quarter, we had the sale of the Zhongshan marina. So including that one is a total $416 million for en bloc sales after-tax basis. As for the fair value gain, after-tax basis is $40 million.
Thank you. Another question from the room? If not, I'll go back to the web. There's a question from Low Pei Han of OCBC Singapore. "Thank you very much for the opportunity. Will it be possible to provide your expectations in terms of timeline and ESP for the Garden Residences?" For Garden Residences, we have launched it recently and the achieved price of the units that have been sold is about $1,645 per square foot. The -- we have a bit of time because, as I mentioned, the Garden Residences was just acquired not long ago and we just launched it. In terms of looking at the ABSD dateline, that is sometime in 2022. So we do have, as I mentioned, we do have time. It's a good product, well located with very strong partners in both Keppel Land as well as Wing Tai. So the partners are confident that we will be able to achieve a good result. Okay. There's a question from Derek Tan -- or 2 questions. "This is Derek Tan of DBS Singapore." His first question, "Where are the potential asset recycling opportunities within the Property portfolio where management feel have achieved fair value?" Second question, "Will management be able to comment on the current IRRs for your Alpha funds if they are above hurdle rates and where you see further opportunities to grow AUM?" I will take the first question and I will ask Christina to address the second question. On the first question on potential asset recycling opportunities, I think we are always, as part of our goal to make Keppel Land a multifaceted property player with a focus on achieving the highest returns, we have to look closely at the property book that we have to get the best returns. Over the 10 years to 2017, end 2017, the average ROE for Keppel Land per annum is about 10 point -- sorry, 14.6%. So that is actually quite a good return. And we have also set a target of a true cycle return of about 12% ROE and this would be on fairly conservative gearing levels. So it is important that we constantly look out for opportunities to turn our asset faster. But you must also remember that some of our assets, including our land bank, was acquired in some of these markets over quite a number of years ago. So where there's opportunities like what we've seen this year in Shenyang as well as in Zhongshan, especially if these are markets that are non-core to us and there's an opportunity for us to recycle, we will do so. Chris, you want to address -- yes.
Sure, okay. I think in terms of current IRRs for the Alpha funds, the Alpha funds have done well. I think we don't necessarily have to disclose all the [ writtens ] because given that's private funds for the pensioners. But generally, I would say that some of you might have read in the papers potential sales and divestments and I think generally, we have performed well for the investors. And where we see opportunities to grow AUM, we are always looking to -- looking at adding new geographies, looking at new partnerships and potentially new asset classes so this could be the alternative asset space. We will announce some of these asset later when there are further details on it. Thank you.
Thanks, Christina. Any questions from the room? No. There's a question from a retail investor, [ Nicholas ] from Singapore. "Good evening, Mr. Loh. Thank you for the good results. I have 2 questions. First question, with the property cooling measures implemented in Singapore, does Keppel Land foresee weaker profits in the coming quarters? Second question, any plans to IPO Keppel Land to unlock value for shareholders?" First question, I think as I mentioned earlier, whilst we do expect the latest cooling measures to have an impact on sentiments, we are still monitoring. We're not -- we will have to see how this turns out. But if you look at it overall, at least in the first half of 2018, the land sales -- or sorry, the property sales, the home sales that we have for Keppel Land in Singapore is under 10% of the property sales for Keppel Land as a group. So Singapore is an important market, but as I mentioned earlier, because of our diversification to different markets like Vietnam and China and Indonesia, et cetera, it will not -- it may not lead to a weaker profit immediately in the coming quarters. So I don't -- so it's not a foregone conclusion that, that will happen. Any plans to IPO Keppel Land, answer is no. Keppel Land is a core part of the group and it's working out very well in terms of how it has been able to contribute to the overall profits for Keppel Corp. And more importantly, I think under OneKeppel, we also see a lot of opportunities for us to unlock value as a group, working with different parts of our group like Keppel Urban Solutions as an example.
Looks like we have answered all the questions, unless there's one last question from someone in the room. Any burning last question? If not, thank you very much for your attention.
Thank you, ladies and gentlemen, for joining us today. We've come to the end of our conference. Please enjoy the refreshments outside.