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

Keppel Corp - Maybank Kim Eng 2016-01-22: Still Overcast KEPPEL CORPORATION LIMITED BN4.SI 

Keppel Corp (KEP SP) - Still Overcast 


Dividend cut, key concerns not alleviated 

  • 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. 


SGD230m provision… 

  • 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. 

Events to watch 

  • 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. 

Results beat on stronger property sales & reval. 

  • 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


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