KEPPEL CORPORATION LIMITED
BN4.SI
Keppel Corporation - Upside capped
- 3Q15 net profit of S$363m is largely in line with our expectation and consensus. 9M15 core net profit forms 75% of our FY15 forecast.
- Revenue for O&M missed slightly on slower-than-expected project recognition and more deferral of deliveries (three jack-ups). O&M EBIT % stable at c.12%.
- Property sold 1,330 homes in China, up from 1,080 in 2Q15.
- Downgrade from Add to Hold on limited upside. Re-rating catalysts could include stronger-than-expected margins and orders on O&M.
Lower O&M revenue with more deferrals
- 3Q15 O&M revenue dipped 11% qoq to S$1.4bn on lower volume of work and deferment of some projects. The deliveries of three jack-up rigs (two from Grupo-R and one from Parden Holdings) have been deferred by three to four months from 2H15 to 1Q16.
EBIT margin for O&M remained stable
- O&M’s 3Q15 EBIT margin was stable at 12.3% on the back of a mix of repair, conversions and specialised shipbuilding (FLNG, ice-class MPV, liftboats). The lack of significant revenue recognition from low-margin Sete-Brasil semi-subs could have also helped to support the overall margin.
Sete Brasil delivery, a moving target
- Construction work for Sete Brasil moved very slightly from 2Q15 to 3Q15. We believe this is to preserve the projects from running into a cashflow negative position. KEP has extended the time for delivery and payment by 10 months and we believe further extensions could be given until Feb 16.
Net gearing stretched to 52% due to working capital in O&M
- The increase in the group’s net gearing position is mainly due to O&M’s working capital with deferral of deliveries by non-Brazilian customers (20/80 payment), coupled with non-payment by Sete Brasil.
Property is the bright spark
- 3Q15 property revenue up by 13% qoq, thanks to higher residential sales in China and Vietnam. Most of the sales in China were derived from Shanghai, Chengdu and Tianjin Eco-City.
We downgrade from Add to Hold
- As we roll over our RNAV-based target to CY17, our target price is reduced to S$7.12 on lower O&M profit as the order momentum is expected to remain lacklustre in 2016. We adjust our EPS by -3% to 1% for FY15-17 due to lower O&M revenue offset by higher property.
- Given the limited share price upside and catalysts, we downgrade from Add to Hold. We would look to accumulate on higher O&M margin and order wins.
LIM Siew Khee
CIMB Securities
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http://research.itradecimb.com/
2015-10-23
CIMB Securities
SGX Stock
Analyst Report
7.12
Down
7.46
