Keppel Corporation - CIMB Securities 2015-09-09: Invest for the long-term.

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KEPPEL CORPORATION LIMITED BN4.SI 

Invest for the long-term 

• Potential for more private funds to fund development projects. 
• Rig orders are dry but enquiries for production and subsea orders enquiries are still coming in. 
• Sustainable dividend. 

Group meeting with the management.  

• We attended Keppel Corp’s group lunch with analysts. Management reiterated its long-term strategy and synergies across the core businesses - O&M, property, infrastructure and investments. More private funds to fund projects and asset monetisation 
• KEP is considering partnering with more private funds to grow its business, such as developing infrastructure asset to achieve better returns without stressing its balance sheet. In addition, there will continue to be periodic monetisation of assets across segments by injection into a REIT or trust structure to attract higher valuations. 

Not all gloom and doom in O&M 

• It is not all gloom and doom in order wins as KEP still gets enquiries on non-drilling asset orders and expects more synergies between yards as Keppel SingMarine may take on sizeable projects that require block fabrication by rig-building yard (FELS) as the latter has fewer orders in the near term. Our S$2bn orders p.a for 2015-16 remain. 

Six rigs to proceed with new-build programme 

• Management said that the six rigs to be built for Sete Brasil could be a go-ahead in the latest restructuring development by the Brazilian group. However, financing of the last two projects is still unclear and KEP is unlikely to take on the financing. 

Cautious optimism on China property 

• The recent Tianjin explosion had a short-lived impact on its projects’ showroom visits which reverted to normal in the subsequent weeks. KEP still expects good home sales in 2015 in China with relaxed cooling measures. KEP clarified that it is unlikely to spend “billions” bidding for the Asia Square Tower 1 project, contrary to media reports. 

50% dividend payout 

• KEP endeavors to keep the historical 50% dividend payout. We think this can only be achieved if other divisions (investments and infrastructure) contribute more as O&M may need to preserve cash for rainy days. We expect more asset monetisation and capital recycling from other divisions. 

Maintain Add and RNAV of S$7.46 

• We keep our Add call and target price of S$7.46, still based on RNAV. Key catalysts include earnings accretive M&A, stronger-than-expected orders and asset monetisation.

LIM Siew Khee | http://research.itradecimb.com/ CIMB Securities 2015-09-09

ADD Maintain ADD 7.46 Same 7.46