Keppel Corporation - OCBC Investment 2018-01-22: Accumulate On Dips

Keppel Corporation - OCBC Investment 2018-01-22: Accumulate On Dips KEPPEL CORPORATION LIMITED BN4.SI

Keppel Corporation - Accumulate On Dips

  • Looks to offload six jack-ups.
  • 4Q to see net loss with fine provision.
  • Cash inflows from asset disposals; K1 Ventures.

Seeks to offload six jack-up rigs for US$960m; US$160m/rig 

  • According to a 19 Jan article by The Business Times, Keppel Offshore & Marine is looking to offload six jack-up rigs for up to US$960m to Oslo-listed Borr Drilling, translating to US$160m per rig. 
  • In the evening on the same day, Keppel Corp confirmed that discussions are ongoing with Borr but the details have not yet been finalised.
  • Deferred rigs for original buyers such as Grupo R and Parden were contracted at US$206m in 2013. If successful, this is positive on Keppel Corp’s cash flows and will improve its balance sheet. 
  • Recall that Borr Drilling was also the same buyer for Sembcorp Marine’s nine rigs in Oct last year. At that time, nine Pacific Class 400 jackup drilling rigs were sold to Borr for US$1.3b (US$144m/rig) plus a market-based fee calculated based on an uplift in value of the rigs sold.

4Q net loss expected due to fine; potential price weakness then? 

  • The group will be reporting its FY17 results on Thursday, and as mentioned in our earlier report on 26 Dec 2017, it will book its provision for the S$570m fines in the upcoming results. Hence a quarterly net loss for 4Q is expected. 
  • Beyond that, we expect asset disposals such as Keppel China Marina, other asset recycling initiatives in the real estate segment and possibly the above-mentioned six rigs to provide a boost to the bottom-line. 
  • Do note that K1 Ventures has also proposed for a voluntary liquidation. If approved, Keppel Corp which owns 36% will also get its share of the distribution of excess cash - aggregate S$315m to be divided. 
  • Should there be potential price weakness following the 4Q results, longer-term investors may consider accumulating on dips. 
  • Meanwhile, with improving valuations in SG and HK-listed property names, we increase our P/B for the property segment, as well as for the O&M segment due to recovering oil prices. As such our Fair Value estimate rises to S$9.32.

Low Pei Han CFA OCBC Investment | 2018-01-22
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 9.32 Up 8.120