Keppel Corp - RHB Invest 2017-06-30: New Offshore & Marine Contracts

KEPPEL CORPORATION LIMITED BN4.SI

Keppel Corp - New Offshore & Marine Contracts

We estimate that Keppel’s current orderbook stands at SGD3.8bn, as it had added another SGD85m worth of new orders with recent contract wins.
The company has also finalised its Borr Drilling novation agreement, which should underpin better cash flows and lower risk of impairment.
Going forward, recurring income from its infrastructure and investment divisions would continue to complement its O&M and property earnings.

Maintain BUY with revised SOP-based Target Price of SGD7.34 (from SGD7.55, 15% upside).

Keppel Corp (Keppel) announced recently that it had secured four conversion and repair projects worth SGD85m at its offshore and marine (O&M) segment.
The first two contracts was for the conversion of an oil tanker to an FPSO, the third was for the conversion of a semisubmersible heavy lift vessel to a crane vessel, while the last contract was for a major refurbishment of an LNG carrier. The projects will be delivered between 3Q17 and 1Q18. These recent awards bring O&M YTD total contracts to SGD361m.

Keppel also announced that it had signed a definitive agreement with Borr Drilling to novate the construction contracts of five jack-up rigs originally built for Transocean. The rigs will be delivered in stages from 1Q18 to 2020.
The agreement will improve Keppel’s cash flow and minimise the risk of further impairment to its balance sheet.

Keppel is focusing on expanding its stable recurring income at its infrastructure and investment divisions. These sources of income would complement the earnings that are based on projects at its O&M unit.
In FY16, c.40% of its net profit came from a recurring base. The company recently announced the ground breaking for the Keppel Marina East desalination plant, which will be Singapore’s fourth desalination plant. The desalination plant will be on a design, build, own and operate model and is slated to start operations by 2020.

In 1Q17, property contributed 39% to Keppel’s bottomline. Keppel has a remaining landbank of 1.1m sqf in Singapore and 4.9m sqm in China.
In 1Q17, China sales came in at CNY1.2bn (c.SGD245m). RHB’s China economist expects property spending growth to moderate heading into 2018.

Although O&M contributions remain relatively sluggish, we believe Keppel’s strategy to focus on non-drilling and specialised projects is the right move, as evidenced by its contract wins YTD.
We adjust our Target Price to SGD7.34 as we adjust our discount rate and valuation for Keppel Land, Keppel Capital and the O&M division.
We maintain our BUY recommendation.
Note that Keppel’s current share price reflects the valuation of its business ex-O&M.
We make no changes to our earnings forecasts.

Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2017-06-30

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 7.34 Down 7.550