Keppel Corporation - DBS Research 2018-03-12: Awilco Contract In The Bag

KEPPEL CORPORATION LIMITED BN4.SI

Keppel Corporation - Awilco Contract In The Bag

Keppel Corp inked US$425m contract with Awilco for a newbuild mid-water harsh environment semisubmersible drilling rig.
Marking first contract win in 2018.
Positive on contract wins ahead.
Reiterate BUY; Target Price unchanged at S$10.20.

Following the LOI signed at end Feb, Keppel has firmed up the contract with Awilco to construct a mid-water harsh environment semisubmersible (semi) drilling rig, worth about US$425m (approx S$560m). The rig is scheduled for completion in 1Q 2021.
The contract comes with independent options to order up to another three similar rigs to be exercised within 12, 24 and 36 months respectively. The prices of the three additional rigs are subject to cost adjustments.

Contract value appears to be lower than usual price tag of c.US$600m for harsh environment semisubmersible as it will be built to Moss Maritime's CS60 ECO MW design - a compact version specially designed, configured and outfitted for mid-water operations of up to depths of 1,500m. In addition, there could also be some savings from material / equipment cost reductions after the industry downturn.
For comparison, Sembcorp Marine’s CS60 ultra-deep-water (up to depths of 3,000m) design was priced at US$568m in 2012. We reckon margins should be lower than previous orders given the market conditions.

Nevertheless, this is positive news for Keppel. Lifting order wins and revenue is much needed during a recovery phase. The contract accounts for 19% of our order win assumption of S$3bn this year. If Awilco exercises the options over the next 3-year, the total contract value could go up to US$1.7bn (c. S$2.3bn).
Contract wins from repeat customer Awilco (Keppel has delivered three jackup rigs) is also a testament to Keppel’s capabilities in rig solutions.
Read also the recent report on rig-building recovery: Singapore Rigbuilders: Glimmer of hope for rig market.

Reiterate BUY; Target Price S$10.20.
Keppel is a safer bet to ride on both O&M recovery and property re-rating, while offering decent dividend yield of 3%.

Pei Hwa HO DBS Vickers | http://www.dbsvickers.com/ 2018-03-12

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 10.200 Same 10.200