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

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/