OCBC Investment Research 2015-07-24: Keppel Corporation: A soft quarter. Maintain HOLD.

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Keppel Corporation: A soft quarter 

 Weaker than expected results 

 Infrastructure disappoints 

 Not much clarity from Brazil 

2Q15 results below 

• Keppel Corporation reported a 19.3% YoY fall in revenue to S$2.56b and a 2.3% decrease in net profit to S$396.7m in 2Q15, such that net profit accounted for 45% of our full year figure, below ours and the street’s expectations. 
• Operating margin for the O&M division was lower at 13% (adjusted for restructuring of operations) in the quarter, vs. 14.7% a year ago and 12.0% in 1Q15. 
• A deliberate slowdown in the construction of rigs in Brazil as well as deferment of certain rig projects (outside Brazil) also impacted revenue in the quarter. 
• However, what was more surprising was the continued poor performance from the infrastructure division which saw significant impairments in the quarter. 

Infrastructure buoyed by one-offs; Doha disappoints again 

• In 2Q15, the group had to make further provisions related to the Doha North Sewage Treatment project which had been experiencing delays and cost overruns; management believes that this will be the final round of adjustments. 
• Meanwhile, the infrastructure segment was boosted by close to S$260m gains from two transactions – the sale of a 51% interest in Keppel Merlimau Cogen and the restructuring of Crystal Trust and CitySpring Infrastructure Trust to form the enlarged Keppel Infrastructure Trust. 
• Still no payments from Sete Brasil As for the six semi-submersible units for Sete Brasil, the first three units are 90%, 63% and 36% completed, respectively. 
• Keppel Corp has not received any payment from its customer since the last payment in Nov 2014. 

Maintain HOLD 

• To date, new order wins totaled about S$1.5b vs our full year forecast of S$2b. 
• The group’s net order book stands at S$11.0b, with deliveries extending into 2020. 
• Management still expects its yards to remain busy in the next two years, based on its current backlog. However, taking into account the weaker-than-expected results, we tweak our earnings estimates and lower our SOTP-based fair value estimate from S$9.22 to S$8.41. 
• Maintain HOLD. 

(Low Pei Han)

Source: http://www.ocbcresearch.com/