Keppel Corporation - CIMB Research 2016-04-07: Drizzle in drought

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KEPPEL CORPORATION LIMITED BN4.SI 

Keppel Corporation - Drizzle in drought 

• Although small, we appreciate Keppel O&M’s announcement on its maiden BRL500m (S$190m) FPSO fabrication and integration contract from Modec. 
• The modules of the FPSO will be built and integrated in BrasFels, Brazil. We expect EBIT margin of 10-12% for the contract that will be recognised in FY17. 
• We trim our order win forecast from S$1.5bn to S$1bn to reflect slower momentum. EPS is cut 1% for FY17-18. 
• Maintain Hold and target price unchanged, still based on RNAV valuation. 

Work to be done in Brazil, hence quote in reals BrasFELS 

• Brazil was awarded a FPSO module fabrication and integration project by Modec for BRL500m (S$190m). The scope of work comprises fabrication and integration of nine topside production modules for the FPSO Cidade de Campos dos Goytacazes. The vessel will arrive in the shipyard by 1Q17 and be redelivered in 3Q17. 
• The FPSO will have the capacity to process 150,000 bopd and 5m cubic metres of gas per day. The unit’s storage capacity is 1.6m barrels of oil. 

Relatively higher contract value due to fabrication 

• The current contract value is higher than the last FPSO integration contract for Modec in 2013 (S$100m-120m) as it includes the fabrication element. 
• We expect the contract to earn EBIT margin of 10-12% (typical conversion contracts in Singapore would fetch c.15%) to account for the higher cost environment in Brazil. 

Trimming our order win forecast to S$1bn 

• We trim our order win forecast from S$1.5bn to S$1bn in 2016 to reflect the much slower order momentum. 
• Recall that Keppel won S$1.8bn in 2015, of which S$923m came from the option exercised by Golar for the third and final FLNG. 

Maintain Hold and target price 

• Our EPS is trimmed by 1% for FY17-18 to account for the lower orders. 
• Maintain our target price at S$5.53, still based on RNAV, comprising 30% discount to RNAV for properties, 4x O&M BV (O&M ROE of 35%). 
• We see potential catalysts from surge in oil price and divestment of non-core assets.

LIM Siew Khee CIMB Securities | http://research.itradecimb.com/ 2016-04-07

CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 5.53 Same 5.53