Keppel Corp - RHB Invest 2017-01-27: Eyes On The Horizon

KEPPEL CORPORATION LIMITED BN4.SI

Keppel Corp - Eyes On The Horizon

In the near term, we expect property and infrastructure to drive Keppel’s earnings.
For offshore & marine, we believe its strategy of focusing on non-drilling solutions, LNG projects and specialised vessels would enable it to navigate the choppy waters of the currently weak market conditions.
We adjust our SOP valuation to better reflect its listed entities and increase our TP to SGD7.39 (from SGD6.52, 18% upside), which implies 10x FY17 P/E.

Maintain BUY, as we raise our earnings for FY17F-18F by 8- 9% respectively after adjusting our O&M orderbook replenishment higher.

Keppel Corp (Keppel) has a SGD3.7bn orderbook, and the current focus of its offshore & marine division would be on LNG- and gas-related technologies, specialised vessels, repurposing offshore technology, and repairs and conversions. This is as the group attempts to harbour through the long and harsh winter.
Do note that Keppel secured SGD500m worth of contracts in FY16, all coming from non-drilling solutions. These contracts are for four FPSOs, a pipelay vessel upgrade, three dredgers and two dual fuel tugs, which are to be delivered in various stages in FY17-18.

We believe that Keppel’s property and infrastructure wings are to play an important role in driving its earnings in the near to medium term.
For property, the group is to continue focusing on Singapore, China and Vietnam as its key markets.
Keppel was recently awarded the tender to design, build, own and operate Singapore’s fourth desalination plant with a concession period of 25 years. The plant would be able to treat sea water as well as fresh water from the Marina reservoir.

Although the offshore & marine market is currently soft, we believe Keppel’s strategy of focusing on non-drilling solutions and specialised vessels would enable it to navigate the tough market situations.
Maintain BUY with a higher SGD7.39 TP, which implies 10x FY17 P/E.
Risks to our forecast includes lower-than-expected orderbook wins for the offshore & marine business.

Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2017-01-27

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 7.39 Up 6.520