Keppel Corp - RHB Invest 2017-07-21: Slower Property And O&M

KEPPEL CORPORATION LIMITED BN4.SI

Keppel Corp - Slower Property And O&M

Keppel registered core earnings of SGD251m for 1H17, coming in below our and consensus estimates.
Property and offshore & marine slowed down in 2Q17, but we believe these two segments would start to pick up in 2H17, as both segments would start to deliver more projects.
Recurring income coming from the infrastructure segment and investments would continue to provide support to earnings.

We make no changes to our earnings forecasts. We maintain BUY with an unchanged SOP Target Price of SGD7.34 (12% upside).

Revenue for 1H17 came in at SGD2.8bn, 17% lower YoY, dragged down mostly by lower turnover from the offshore & marine (O&M) and property segments.
O&M revenue came in at SGD930m, lower 40% YoY due to lower volume of work.
Property revenue also came in lower by 17%, due to lower sales from China, although this was partially offset by higher sales from Singapore.
Revenue from infrastructure came in higher YoY by 24%, mostly due to increased sales in the power and gas business.

Stripping off one-off items, core profit came in at SGD251m, below our and consensus expectations at 29% and 28% of expectations respectively.
Inflow of cash from operations came in at SGD212m, an improvement from an outflow of SGD325m in 1H16.
Keppel declared a DPS of 8 cents.

In 1H17, O&M delivered one FPSO conversion, one FPSO topsides installation and integration, and one semisubmersible. Orderbook for the segment stands at SGD3.4bn and YTD Keppel has won c.SGD300m worth of new contracts for O&M.
Keppel is currently focusing on gas solutions, that would enable the company to stay relevant in the offshore & marine space.

In 1H17, Keppel sold 2,470 units with a total sales value of SGD1.2bn. China continues to be the main contributor to earnings, with 73% of units coming from China – followed by Vietnam and Singapore.
Keppel expects a slight recovery in the Singapore property market and we believe China would continue to be the main contributor to earnings in the near to mid term.

For 1H17, 36% of its net profit came from a recurring income base, mainly from REITs and trusts, asset management, infrastructure services, operations & maintenance, as well as rental and charters.

Although core earnings came in at only 29% of our estimates, we make no changes to our earnings forecasts, as we think Keppel would be able to play catch-up in 2H17 with its schedule of O&M deliveries and property projects in its pipeline.
Infrastructure and investments would continue to provide a recurring income support to the company.
We maintain our BUY recommendation with an unchanged SOP TP of SGD7.34.

Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2017-07-21

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 7.340 Same 7.340