Keppel Corporation - OCBC Investment 2017-11-29: Favourable Long-term Prospects

Keppel Corporation - OCBC Investment 2017-11-29: Favourable Long-term Prospects KEPPEL CORPORATION LIMITED BN4.SI

Keppel Corporation - Favourable Long-term Prospects

  • Multi-business strategy shines.
  • Focus on new orders for O&M.
  • Room for growth.

Multi-business model shone in 2017 

  • 2017 was the year that Keppel Corp demonstrated the benefits of its multi-business strategy. Despite the downturn in the oil and gas sector, the group delivered an 11.2% YoY rise in PATMI to S$712.5m in 9M17. 
  • Offshore & Marine broke even for most of the year, while Property was the top contributor to the group’s earnings at 56% for 9M17. This was followed by Investments at 30%, and Infrastructure at 14%.
  • On a book value basis, O&M accounted for 17% of net asset value, Property at 63%, Infrastructure at 12% and Investments at 8%.

Strengthening core competencies and undertaking new initiatives 

  • In 2018, we expect Property to remain the dominant contributor to earnings as the group remains focused on strengthening its presence in its core and growth markets, while seeking opportunities to unlock value and recycle capital.
  • The Tianjin Eco-City project is also bearing fruit, with average selling prices of Eco-City residential land having increased significantly since 2016. Do note that land sales of the Eco-City project positively impact the Investments division. 
  • For the O&M segment, the focus will be on new order flows. Having secured more than S$1b of new orders so far this year, we are expecting new orders of about S$1.5b next year, mostly premised on non-drilling work. The division is actively capturing opportunities in production assets, specialised vessels and the growing gas market and exploring ways to repurpose its technology in the offshore industry for other uses.
  • In the Investments division, Keppel Capital is expected to grow and allow Keppel Corp to more effectively recycle capital and expand its capital base with co-investments, giving room for growth without putting a strain on the group’s balance sheet. Meanwhile, Keppel Corp is also establishing a new business unit, Keppel Urban Solutions, which aims to be an end-to-end integrated master developer of smart, sustainable precincts in Asia-Pacific so as to capitalise on the mega trends of rapid urbanization and the increasing global focus on sustainability. 
  • We tweak our estimates and our fair value rises slightly from S$8.31 to S$8.41.
  • Maintain BUY.

Low Pei Han CFA OCBC Investment | http://www.ocbcresearch.com/ 2017-11-29
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 8.410 Up 8.310