Keppel Corporation - OCBC Investment 2016-04-19: Driven by property sales in China

Keppel Corporation - OCBC Investment 2016-04-19: Driven by property sales in China KEPPEL CORPORATION LIMITED BN4.SI 

Keppel Corporation: Driven by property sales in China 

  • 1Q16 dragged by O&M 
  • Property now 47% of total net profit 
  • Net gearing 0.56x 

Soft 1Q16 results; additional deferments in O&M 

  • Keppel Corp (KEP) reported a 38.1% YoY fall in revenue to S$1.74b and a 41.5% drop in net profit to S$210.6m in 1Q16, such that the latter accounted for 18.0% and 16.9% of ours and Bloomberg’s consensus estimates, hence below ours and the street’s expectations. 
  • Offshore & marine saw a 53% drop in net profit to S$95m, mainly due to project deferments - earlier this year, Transocean and Ensco deferred their units, while Clearwater and BOT Lease Co have also deferred their two jack-ups to next year. 
  • Deliveries of two semis have also been deferred from 2017 to 2019/2020 (customer name undisclosed). 
  • Post the 4Q15 provisions, KEP did not make any further provisions in 1Q16. 

Support from property 

  • In contrast, the property segment saw a 66% YoY rise in revenue to S$503m due to higher sales in China and Singapore, and net profit rose 67% to S$100m in 1Q16; recall too that Keppel Land was privatised and delisted in Jul 2015. 
  • In terms of new home sales, about 940 units were sold in 1Q16, mostly in China (830 units in China, 60 in Singapore and 50 in Vietnam). This is higher than the 720 homes sold in 1Q15. 
  • Looking ahead, Keppel Land has about 20,000 homes in its portfolio ready for launch over the next two years, again mostly in China. 
  • On the infrastructure side, net profit was 36% lower YoY, as the power and gas business saw lower prices and volume. 

Property now accounts for 47% of net profit 

  • The O&M division secured S$0.2b of new orders YTD, and its net order book stands at S$8.6b. 
  • Given the dim sector outlook, we expect continued right-sizing of its operations, while pursuing opportunities in niche markets and in non-drilling areas. 
  • Overall, property contributed most to net profit in 1Q16 with a 47% share, followed by O&M’s 45%, and we expect the divergence to increase. 
  • Meanwhile, the group’s net gearing rose slightly from 0.53x to 0.56x in 1Q16. 
  • Finally, we update our values for the O&M and property segments, as well as the market values of the group’s listed entities, such that our fair value estimate rises from S$5.07 to S$5.57. 
  • Maintain HOLD. 

Low Pei Han CFA OCBC Securities | 2016-04-19
OCBC Securities SGX Stock Analyst Report HOLD Maintain HOLD 5.57 Up 5.07