Keppel Corp - RHB Invest 2016-01-04: New Contracts And Property Consolidations

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Keppel Corp KEPPEL CORPORATION LIMITED BN4.SI 

Keppel Corp (KEP SP) - New Contracts And Property Consolidations 

• Keppel announced SGD125m in new contracts for its offshore division as well as a share swap with private developer Mapletree, which sees it consolidate its ownership in Keppel Bay Tower in exchange for its stake in HarbourFront Towers One and Two. 
• Maintain BUY and SOP-based TP of SGD10.00 (53% upside). We wish management and investors a Happy New Year! 

 SGD125m in four new higher-margin offshore contracts. 

• These four contracts are: 
  1. a liquefied natural gas floating storage unit (LNG FSU) conversion; 
  2. a floating, production, storage and offloading (FPSO) conversion; 
  3. an FPSO integration contract; and 
  4. the hullstrengthening of a jacket transportation and launch barge. 
  These contracts should be higher margin in nature, being conversions, integrations and vessel-upgrade works. 
• These command better returns vis-à-vis fabrication and procurement operations. 

 Share swap to consolidate building ownerships. 

• Keppel Corp (Keppel) is to acquire the 30% of Keppel Bay Tower that is currently owned by Mapletree Investments Pte Ltd (Mapletree) for SGD180.9m. 
• In return, it is to divest its 39% stake in HarbourFront Towers One and Two for SGD225.7m. The SGD44.8m difference would be settled by cash from Mapletree to Keppel. 
• Shareholders may recall that these buildings were originally jointly-developed by Keppel Land Ltd and Mapletree, leading to the cross-holdings that are being unwound now. 

 The writing is on the wall for a potential divestment, with some twists. 

• Typically, Keppel divests mature, stable-income properties into Keppel REIT (KREIT SP, SELL, TP: SGD0.83) as part of its capital recycling strategy. However, we view the REIT as being too highly-leveraged to acquire the SGD610.6m Keppel Bay Tower, whose office grade diverges from Keppel REIT’s preferred Grade A portfolio. 
• We believe Keppel may hold on to Keppel Bay Tower for the near-term recurring income while awaiting divestment opportunities. 

 Happy New Year! 

• After a tumultuous 2015, we believe that 2016 would be the year in which the global overproduction of oil narrows, supporting a rebound in oil prices towards economic marginal cost levels. 
• We wish management and investors a Happy New Year, and the best of health to families and loved ones!

Lee Yue Jer CFA RHB Research | http://www.rhbinvest.com.sg/ 2016-01-04

RHB Research SGX Stock Analyst Report BUY Maintain BUY 10.00 Same 10.00