Keppel Corp - RHB Invest 2017-04-21: Slowly But Surely

KEPPEL CORPORATION LIMITED BN4.SI

Keppel Corp - Slowly But Surely

Although the current environment for offshore & marine remains sluggish, we believe the stabilisation in oil prices could provide an impetus for development expenditures to start again.
As for now, we believe Keppel is well supported by its property and infrastructure division, which we believe has reached bottom.

We maintain our BUY call with a revised SOP-based TP of SGD7.56 (from SGD7.77, 15% upside) as we adjust the delivery schedule of its projects.

The optimism stemming from higher crude oil prices has not yet translated to increased orderbook replenishment at the offshore & marine division. However, we believe the outlook at this division is getting better, with development capex expected to start slowly but surely.
Keppel Corp (Keppel) stands to benefit from higher capex spending, owing to its diversified technical capabilities across the upstream value chain. Having said that, Keppel is keeping itself busy with a pipeline of orders to be delivered in 2017.
Orderbook for offshore and marine stands at SGD3.5bn (vs USD3.7bn in 4Q16), ex-Sete Brasil semi-submersibles.

The infrastructure division started the year on strong footing – Keppel signed a 25-year water purchase agreement with Singapore’s public utilities board (PUB) for the fourth desalination plant in January.
It also signed an agreement with Singapore’s economic development board (EDB) to develop, own and operate a gasification facility, which would provide industrial gases for industries around Jurong Island.
Note that 30% of 1Q17’s net profit was derived from a recurring income base.

We believe the offshore & marine segment has reached its bottom on the improving outlook in the oil & gas market, and that it is a matter of time before development capex starts to trickle in.
The infrastructure and property arm should continue to support its earnings in the meantime.
Maintain BUY with revised SOP-based TP of SGD7.55.
Our 2017F/2018F earnings are lower by 6%/4% as we adjusted the delivery schedule of its projects.

Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2017-04-21

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 7.56 Down 7.770