Keppel Corp - OCBC Investment 2017-07-21: Healthy Profits From Other Core Segments

Keppel Corp - OCBC Investment 2017-07-21: Healthy Profits From Other Core Segments KEPPEL CORPORATION LIMITED BN4.SI

Keppel Corp - Healthy Profits From Other Core Segments

  • O&M still in the black.
  • Interim div of S$0.08 maintained.
  • To double Keppel Capital AUM in five years.

O&M profit S$1.4m in 2Q; maintains interim div 

  • Keppel Corporation (KEP) registered a 4.4% YoY drop in revenue to S$1.6b and a 22.1% fall in net profit to S$160.3m in 2Q17, such that 1H17 net profit accounted for 50% of our full year estimate. Revenue in 1H17 was 16.8% YoY lower at S$2.8b while net profit was 1.0% higher.
  • Profit from the O&M division was S$1.4m, compared to S$61.4m a year ago. Recall that this segment barely broke even in 1Q17.
  • Rightsizing efforts helped to achieve an operating profit of S$36m, but this was not sufficient to cover higher financing costs for the enlarged working capital. 
  • Contributions from associates helped the division to break even. The delivery of two semi-submersibles will be moved from 2019 to 2020 (projects are cashflow neutral and compensation will be given to KEP), while the liftboat for Crystal Heights will be deferred from 2018 to 2019. 
  • As at end Jun, O&M’s net orderbook was S$3.4b, excluding projects for Sete Brasil. 
  • Meanwhile, an interim dividend of S$0.08/share was declared, better than our expectations, as this was the same amount that was declared in 1H16.

Healthy performance for other divisions 

  • Profit from the property division was S$96.6m in 2Q17, compared to S$94.9m in 2Q16 and S$102.8m in 1Q17. The division sold about 2,470 homes in 1H17, with a total sales value of S$1.2b. This is about 15% higher than the 2,140 homes sold in 1H16. 
  • Looking ahead, KEP expects to recognise profits from about 5,860 of overseas homes sold as they are progressively completed from 3Q17 through to 2019. In Singapore, management sees the market bottoming with better prospects ahead.
  • Infrastructure continued to turn in healthy profits, with net profit of S$24.6m in 2Q17 vs. S$27.7m in 2Q16 and S$32.2m in 1Q17. 
  • As for its asset management business which is seeing good demand from investors for investments in assets such as data centres, KEP has ambitious internal targets. Indeed, Keppel Capital aims to double its S$25b AUM over the next five years. 
  • Maintain BUY with S$7.36 fair value estimate on Keppel Corp.

Low Pei Han CFA OCBC Investment | http://www.ocbcresearch.com/ 2017-07-21
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 7.360 Same 7.360