Keppel Corp - RHB Invest 2017-08-29: One-Two Punch

KEPPEL CORPORATION LIMITED BN4.SI

Keppel Corp - One-Two Punch

Keppel announced new contracts worth c.SGD540m for two LNG fuel containerships and a paring down of its stake in Hilli Eposiyo FLNG.
The company also announced that it is selling of its Nantong Waterfront Residences project for a gain of approximately SGD72m, which should be reflected in its 3Q17 earnings.
We maintain our positive view on Keppel as all of its segments are firing.

We make no changes to our earnings and maintain our BUY recommendation with unchanged SOP-based TP of SGD7.34 (16% upside).

Adding further to its offshore & marine orderbook (O&M), Keppel announced that it has secured a contract worth more than USD400m (SGD540m) for the construction of two liquefied natural gas (LNG) fuelled containerships. Delivery of the first vessel is expected in 1Q20 and the second vessel is expected to be delivered in 3Q20.
We estimate the current O&M orderbook at c.SGD3.9bn, and Keppel has secured SGD900m worth of new contracts for this segment. Our orderbook replenishment expectation for 2017 is SGD1bn, and Keppel is close to meeting our expectation.

Keppel, in a consortium with Golar LNG and Black & Veatch, is expected to divest a portion of its equity stake in the Hilli Esposiyo FLNG to Golar LNG Partners for USD178-190m.
Post divestment, Keppel would own 5% (down from 10%) of the FLNG’s common units, while keeping its Series A and B Units at 10%. The Series A and B units entitles Keppel to a portion of the cash flows generated from the facility, subject to terms and conditions.

Keppel would also be divesting its 100% stake in Waterfront Residences, a residential project in Nantong, China for a total consideration of c.SGD292m. As of Jul 2017, the unaudited net asset value for the residential project is approximately SGD220m.
The exercise is expected to be completed by end-3Q17. As we are expecting lumpy earnings from its property segment, we make no changes to our earnings at this juncture.

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.
Property earnings would continue to be lumpy, mainly coming from its land and project sales in China as the company seeks the best returns for its investment, while rebalancing its portfolio in China.
We make no changes to earnings forecasts and maintain our BUY recommendation, with an unchanged SOP-based TP of SGD7.34.
Key risks include lower-than-expected orderbook replenishment.

Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2017-08-29

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