Keppel Corporation - OCBC Investment 2018-04-20: Remains Circumspect On O&M

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KEPPEL CORPORATION LIMITED BN4.SI

Keppel Corporation - Remains Circumspect On O&M

• S$289m gain from Keppel China Marina.
• Property remains healthy.
• Some time before sustained recovery in O&M.

1Q boosted by divestment gain 

• Keppel Corporation (KEP) reported a 17.8% y-o-y rise in revenue to S$1.5b and a 33.7% increase in net profit to S$337m in 1Q18, boosted by a S$289m gain from the divestment of Keppel Land China’s stake in Keppel China Marina Holdings but offset by S$26m loss from associated companies. 
• The Investments division saw a pre-tax loss of S$40m with the recognition of fair value loss on KrisEnergy warrants. 
• Results were generally within expectations, and we keep our estimates largely unchanged. 
• Net gearing was 0.42x as at 1Q18, compared to 0.46x as at 4Q17, and annualised ROE was 11.4%.

Supported by property 

• Property remained the dominant contributor to net profit at S$378m in 1Q18, boosted by the one-off disposal as mentioned earlier.
• Infrastructure contributed S$26m, while offshore & marine saw a net loss of S$23m. 
• Recall that the O&M division started its right-sizing exercise in early 2015, and restructuring is “pretty much done”, according to management. This division saw the lowest quarterly revenue in years, but still managed to turn in an operating profit with the streamlining in operations. Meanwhile, the “Can Do” drillship is currently under construction now, and is in the final stages of testing; it should be ready for the market in 4Q18. As of end 1Q18, O&M’s net order book stood at S$4.3b.

Sustained recovery in O&M to take time; property still healthy 

• With a landbank of about 1,700 units in Singapore, including around 500 units from the redevelopment of Keppel Towers and Nassim Woods, management said it is not in a hurry to acquire land. 
• Across key cities in Asia, the group has a large landbank of 61,000 homes, of which 16,000 are launch-ready from now till 2020. 
• As for the O&M segment, while there are pockets of opportunities in niche markets, management mentioned that “it may take some time” before there is a sustained recovery across the board.
• We update our sum-of-parts valuation along with the market values of Keppel Corp’s listed entities, and our Fair Value eases slightly from S$9.45 to S$9.40. 
• (Maintain BUY)

Low Pei Han CFA OCBC Investment | http://www.iocbc.com/ 2018-04-20

SGX Stock Analyst Report BUY Maintain BUY 9.40 Down 9.450