Keppel Corp - Maybank Kim Eng 2016-01-22: Still Overcast

KEPPEL CORPORATION LIMITED BN4.SI

Keppel Corp (KEP SP) - Still Overcast

Final DPS cut to SGD 22cts (FY15: SGD 36cts), in line with our lowered SGD 20cts forecast but missed consensus’ SGD 28cts.
Sete Brasil’s potential bankruptcy remains fluid while uncertainties on the yet-to-be-delivered jackup rigs still loom. Keppel said it has recovery plans but could not share them at this point. As a result, we think key investor concerns will not be alleviated.
Maintain SELL and SGD4.24 SOTP TP.

but may not be the end Keppel took a SGD230m provision for the Sete Brasil contracts, which it views as adequate at this point, but did not disclose the detailed assumptions.
Our estimate of SGD1b of potential writedowns in our last report takes into account asset writedowns for Sete Brasil rigs, as well as 14 other high-risk contracts.
In the event of a Sete Brasil bankruptcy and any cancellations in other contracts, we believe there could be more writedowns.
We think this will remain an overhang on the stock.

First, clarity on Sete Brasil’s bankruptcy is one key event to watch in the next few weeks. According to Bloomberg, Sete’s shareholder meeting has been moved to a new yet-to-be-confirmed date.
Second, four jackup rigs (3 x Grupo R units and 1 x Falcon unit) for 4Q15 delivery were pushed to 2016. Keppel expects two Grupo R units to be delivered in mid-Feb and the other two in 1H16. Keppel said that the Grupo R units have contracts with Pemex but we understand that Pemex has been cutting and renegotiating rates for its rig contracts.
We think that it is important to watch if customers will indeed take delivery or defer further.

4Q15 PATMI of SGD404.8m (-44.2% YoY, +11.5% QoQ) beat due to strong property segment sales and SGD128m revaluation gain of investment properties. It sold 4,570 homes in FY15, double of FY14 with 72% from China and 20% from Vietnam. This helped offset the SGD230m provision that led to a SGD61m net loss for the O&M segment.
4Q15 O&M margin before provisioning was strong at 17.1% (3Q15: 12.2%, 4Q14: 13.2%), but is likely due to timing.
Keppel guides for 10-12% sustainable level.

Yeak Chee Keong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-01-22

Maybank Kim Eng SGX Stock Analyst Report SELL Maintain SELL 4.24 Same 4.24