Keppel Corporation - OCBC Investment 2018-01-26: Look Beyond The 4Q Net Loss

Keppel Corporation - OCBC Investment 2018-01-26: Look Beyond The 4Q Net Loss KEPPEL CORPORATION LIMITED BN4.SI

Keppel Corporation - Look Beyond The 4Q Net Loss

  • Quarterly net loss as expected
  • Growing optimism in O&M
  • Accumulate on dips

Kitchen-sinking in 4Q17
  • Keppel Corporation (KEP) reported a 11.9% fall in revenue to S$6.0b and a 2.5% drop in operating profit to S$776m in FY17. However, due to a one-off financial penalty and related costs of S$618.7m, Keppel Corporation saw a net loss of S$495.8m in 4Q17, leading to total net profit of S$216.7m for FY17. 
  • As mentioned in our earlier report, the group would take a provision for the Brazil-related fine in 4Q17, and this one-off financial penalty pertains to that. There were also forensic and legal costs in addition to the fine. 
  • Keppel Corporation also made an S$84m provision for stocks and work-in-progress (mostly relating to Sete rigs), as well as S$35m for doubtful debts. 
  • Excluding the one-off financial penalty, pre-tax profit would have been S$1.14b in FY17, which is 8% higher and within expectations. Net profit would also have been 7% higher at S$836m for the full year.

O&M saw net loss even if one-off financial penalty was excluded
  • The offshore & marine division saw a S$216m net loss in FY17 (even if the one-off global resolution and related costs were to be excluded), as the segment was also impacted by provisions and doubtful debts. 
  • Property turned in net profit of S$685m in FY17, which is a 10% increase compared to the previous year. 
  • Infrastructure also performed well with a 33% increase in net profit to S$132m. 
  • As for Investments, the segment was boosted by land sales and disposal gains, which brought net profit to S$235m.

Final dividend of S$0.14/share vs. S$0.12/share a year ago
  • Keppel Corporation had earlier mentioned it would ring-fence the effect of the one-off financial penalty with regards to its dividend. True to its word, Keppel Corporation proposed a final dividend of S$0.14/share, bringing full year dividend to S$0.22/share.
  • Looking ahead, Keppel Corporation notes the growing optimism in the O&M industry and continues to see opportunities for production assets, LNG solutions and specialized vessels. 
  • We fine tune our earnings estimates and our fair value estimate rises slightly from S$9.32 to S$9.45

Low Pei Han CFA OCBC Investment | 2018-01-26
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 9.45 Up 9.320