KEPPEL CORPORATION LIMITED
BN4.SI
Jacking up its asset search
- KEP is on the lookout for more opportunistic investments, going by its recent acquisition of Cameron’s Letourneau rig design division, in preparation for a bigger market share when the rig market recovers.
- Its bid for Asia Square Tower 1 could also increase its exposure to the Singapore property market.
- We keep our Add rating but lower our RNAV-based target price to S$7.46 as we incorporate reduced earnings from O&M as a result of our blanket order cut and deferral of Sete Brasil‟s semi-submersibles.
- Our EPS forecasts are up by 1-7% with higher earnings contribution from the property division.
- Including dividend yields of 5%, KEP could still yield a total return of c.13%.
- Key catalysts could come from earnings-accretive M&As.
Increase rig design market share
- Recently, KEP announced that it is paying US$100m for Cameron‟s offshore rig business comprising the Letourneau jack-up rig designs, rig kit business and after-market services. The deal stems from Schlumberger's US$12.71bn acquisition of Cameron. With this acquisition, Keppel is able to offer enhanced jack-up rig EBIT margin as high as in their 20s% as proprietary designs usually command higher margins. Letourneu rigs make up about 27% (Keppel FELS: 16%, SMM Baker Marine: 14%) of global drilling rigs and 12% (Keppel FELS: 21%, SMM Baker Marine: 6%) of those under construction currently.
- Asia Square Tower 1 KEP is also said to have submitted its offer for Asia Square Tower 1 (c. 1.2m sq ft of office space) at a price of S$3.5bn, contending against Capitaland and the Norwegian sovereign wealth fund. An agreement could be reached by Oct 15. Based on our back-of-envelope calculation assuming 85% occupancy at rental of S$10/sq ft and 60% loan financing at 3.5% interest rate, it could generate S$15m PAT to KEP.
- Though small, this could be a trophy asset for KEP to up its exposure to the Singapore property development market. Property accounts for 35% of our FY15-17 net profit forecasts for KEP, with O&M still at c.50%.
Blanket cut in orders and delays in Sete Brasil
- Given the glut in offshore rigs, the order momentum will remain slow in FY16 as sizeable orders are less commoditised and take longer to come to fruition.
- We cut our orders for FY16-17 by 11-26%, now expecting S$2bn for FY15-16 and S$4bn for FY17. KEP has secured S$1.5bn YTD.
LIM Siew Khee | http://research.itradecimb.com/ CIMB 2015-09-02
7.46
Down
8.88
