Keppel Corp - RHB Invest 2015-10-23: Island Of Calm

Keppel Corp - RHB Invest 2015-10-23: Island Of Calm Keppel Corp KEPPEL CORPORATION LIMITED BN4.SI 

Keppel Corp - RHB Invest 2015-10-23: Island Of Calm

  • As we forecasted, Keppel’s property division surprised the street on the strength and timing of its earnings. 
  • Maintain BUY with an unchanged SOP-based SGD10.00 TP (37% upside). 
  • 3Q15 PATMI rose 8% QoQ to SGD363m, after adjusting for 2Q15’s one-offs. 
  • The key weakness was the order win momentum, as it scored just SGD1.7bn in new contracts YTD. 
  • We keep our broad view on Keppel – its property earnings will offset a weaker offshore & marine unit, supporting the dividend. 

 Earnings bolstered by property income. 

  • Although Keppel’s headline profit dropped 9% QoQ, after stripping out the significant one-off profits in the infrastructure division in 2Q15, its core earnings actually rose 8%. The SGD7m lower profits at the offshore & marine (O&M) division were more than offset by the SGD17m higher property earnings, which has surprised the street. 

 “Hunkering down” for O&M. 

  • Management described the process of “hunkering down in the O&M business, rightsizing operations and resources” against the possibility of a longer-than-expected downturn. This is prudent, given that the company has only won SGD1.7bn of contracts YTD. However, management did clarify that it is not an acrossthe-board cost-cutting exercise, and Keppel will continue to spend on research and development, productivity improvements and training. 

 Property outperformance; more launches moved up. 

  • Keppel sold c.1,300 homes in 3Q15 vs c.1,080 in 2Q15. 3,130 homes were sold in 9M15, up 66% YoY, and exceeded the 2,400 for the whole of FY14. The improvement came from China and Vietnam. We further note that while the West Vista project in Indonesia appears to have been slightly delayed, the Elita Horizon project in India has been brought forward in a big way (+458 units for launch in FY16) with a net increase of 518 units ready for launch in FY16 vs 2Q15’s projection. 

 BUY for yield and diversified operations. 

  • We have adjusted our property income up and O&M earnings forecasts down, with negligible net changes for FY15-17F. The big picture for Keppel remains the same – its diversified operations keep the group steady in an island of calm whilst competitors flounder. The 6.6% yield is a key attraction. Key risks remain order delivery deferments and a weak order win momentum.

Lee Yue Jer CFA RHB Research | 2015-10-23
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