Keppel Corp - Slowly But Surely
- Although the current environment for offshore & marine remains sluggish, we believe the stabilisation in oil prices could provide an impetus for development expenditures to start again.
- As for now, we believe Keppel is well supported by its property and infrastructure division, which we believe has reached bottom.
- We maintain our BUY call with a revised SOP-based TP of SGD7.56 (from SGD7.77, 15% upside) as we adjust the delivery schedule of its projects.
Offshore & marine division remains sluggish for now.
- The optimism stemming from higher crude oil prices has not yet translated to increased orderbook replenishment at the offshore & marine division. However, we believe the outlook at this division is getting better, with development capex expected to start slowly but surely.
- Keppel Corp (Keppel) stands to benefit from higher capex spending, owing to its diversified technical capabilities across the upstream value chain. Having said that, Keppel is keeping itself busy with a pipeline of orders to be delivered in 2017.
- Orderbook for offshore and marine stands at SGD3.5bn (vs USD3.7bn in 4Q16), ex-Sete Brasil semi-submersibles.
Infrastructure holding up the fort.
- The infrastructure division started the year on strong footing – Keppel signed a 25-year water purchase agreement with Singapore’s public utilities board (PUB) for the fourth desalination plant in January.
- It also signed an agreement with Singapore’s economic development board (EDB) to develop, own and operate a gasification facility, which would provide industrial gases for industries around Jurong Island.
- Note that 30% of 1Q17’s net profit was derived from a recurring income base.
- We believe the offshore & marine segment has reached its bottom on the improving outlook in the oil & gas market, and that it is a matter of time before development capex starts to trickle in.
- The infrastructure and property arm should continue to support its earnings in the meantime.
- Maintain BUY with revised SOP-based TP of SGD7.55.
- Our 2017F/2018F earnings are lower by 6%/4% as we adjusted the delivery schedule of its projects.