Keppel Corp - Maybank Kim Eng 2016-07-22: Another uninspiring quarter

Keppel Corp - Maybank Kim Eng 2016-07-22: Another uninspiring quarter KEPPEL CORPORATION LIMITED BN4.SI 

Keppel Corp (KEP SP) - Another uninspiring quarter 

Results missed, interim DPS cut to SGD8.0cts

  • 1H16 PATMI of SGD416.3m (-45% YoY) formed only 40%/36% of our/consensus FY16E. 
  • Offshore & Marine (O&M) was the key drag, as revenue dipped 56% YoY due to low work volume and project deferments. 
  • Performances from other divisions were insufficient to make up for the O&M weakness. 
  • The property division sold 2,140 homes (+18% YoY) in 1H16 (940 in 1Q16), with 86% of the units in China. 
  • Interim DPS was cut to SGD8.0 cts (1H15: SGD12.0cts), in line with our expectations. 
  • Net gearing crept up from 0.56x last quarter to 0.62x in 2Q16, which Keppel attributed to dividend payments. 
  • Cut FY16-18E EPS by 2-5%. 
  • Maintain SELL with SOTP TP lifted slightly from SGD4.42 to SGD4.50 as we adjust for a delivered rig and market values of listed entities.

No respite for O&M despite higher oil price

  • As mentioned in our report, industry spending is still restrained despite higher oil prices. YTD order wins for Keppel O&M amounted to only SGD460m vs our SGD1.6b FY16 forecast. 
  • Management reiterated a long and harsh winter but maintains that its SGD230m provisions are sufficient for now. 
  • We continue to account for further write-downs in our O&M valuation to price in a worst-case scenario. That said, we have written back impairment for the rig that was recently delivered to Perforadora Central. Working capital needs may have plateau as work slows but monetisating its work-in-progress and receivables may take some time.

Stronger home sales may not be enough

  • The 2,140 homes were sold for SGD960m, driven mainly by China sales. 
  • The outlook for the Singapore property market remains soft but Keppel expects to sell more homes this year than the 4,570 units in FY15 from stronger overseas sales. Some 3,400 overseas homes sold could be recognised over 2H16 to 2018. 
  • We estimate net profit from these units to be just higher than its FY15 property trading net profit of SGD346m.

No re-rating catalysts

  • We keep our negative view as we see no near-term re-rating catalysts. 
  • Uncertainties surrounding Sete Brasil contracts, poor order intake and low vessel delivery visibilities will continue to cap share price upside

Yeak Chee Keong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-07-22
Maybank Kim Eng SGX Stock Analyst Report SELL Maintain SELL 4.50 Up 4.42