Keppel Corporation - CIMB Research 2018-04-02: Divestment Gain To Boost 1Q18 Earnings

Keppel Corporation - CIMB Research 2018-04-02: Divestment Gain To Boost 1Q18 Earnings KEPPEL CORPORATION LIMITED BN4.SI

Keppel Corporation - Divestment Gain To Boost 1Q18 Earnings

  • Keppel Land China will recognise c.S$270m of gain from divestment of 100% stake in Keppel China Marina Holdings after clearing the objections by a minority shareholder.
  • We expect 1Q18 (on 19 April 2017) earnings to be supported by the gain. O&M may reach almost breakeven without kitchen-sinking provisions.
  • ADD maintained with an unchanged SOP-based Target Price of S$10.00.

Cashing in c.S$590m, gain of c.S$270m in 1Q18

  • In Oct 2017, Keppel Land China announced the divestment of 100% stake in Keppel China Marina Holdings for Rmb2,900m (c.S$590m) to Delight Prime Limited. However, the completion was delayed due to objections by a minority shareholder, Sunsea Yacht Club (Hong Kong).
  • Keppel China Marina Holdings indirectly owns 80% in Sunsea Yacht Club (Zhongshan) which owns and is developing Keppel Cove, a residential and marina development on Modao Island, Zhongshan City. The development comprised land area of 891,752sqm with phase 1 completed in Mar 17 (42 villas, club house and a marina with 82 berths). We are pleased with the outcome and see this as a major milestone in unlocking capital within the property division. 
  • To-date, Keppel Corp has received Rmb2,865m (denominated in c.Rmb451m and S$496m) with a further S$7m to be received on 2 Apr 18. The transaction was originally planned to be completed in 4Q17 with a gain of S$290m. With the appreciation of Rmb, we expect a gain of c.S$270m to be recognised in 1Q18.

More on 1Q18F preview

  • Keppel Corp will report its 1Q18 results on 19 Apr 2018. We expect earnings to be supported by the above-mentioned gain.
  • The O&M division should turn in better q-o-q performance without S$140m of kitchensinking provisions. Yard utilisation may still be lacklustre in 1Q18F with material milestone for FLNG Gandria conversion and Awilco semi-submersible only likely to kick in by 2Q18. There is a possibility of O&M achieving breakeven on the back of leaner operations as sub-optimal yards were substantially closed down in 4Q17.
  • Investment division may see q-o-q profit with no major land sale in Tianjin Eco-City and lagged recognition of wider losses of KrisEnergy in 4Q17.

Maintain Add and target price of S$10.00

  • Catalysts ahead include
    1. a successful sale of delayed rigs to unlock working capital and
    2. higher dividend potential from more asset recycling in the property division.
  • The stock is cheap at 1.1x FY18F P/BV, below its 20-year average of 1.7x. We believe ROE bottomed in FY17 and is set to recover on the back of minimal capex and earnings growth. 
  • Risks could come from noises from litigation.

LIM Siew Khee CIMB Research | 2018-04-02
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 10.000 Same 10.000