Keppel Corporation - CGS-CIMB Research 2018-07-10: Hopeful For A Special Dividend

Keppel Corporation - CGS-CIMB Research 2018-07-10: Hopeful For A Special Dividend KEPPEL CORPORATION LIMITED SGX:BN4

Keppel Corporation - Hopeful For A Special Dividend

  • Backed by a stronger balance sheet, Keppel Corp could announce a special dividend of S$0.10-12 in its upcoming 1H18F results to commemorate its 50th anniversary.
  • Secured c.S$800m of orders YTD. We cut our order assumptions to S$2bn for 2018F (previously S$3bn) to be more realistic in our expectations.
  • Our EPS is tweaked by 1-2% for FY18-20F on slower offshore & marine (O&M) orders and property sales in Singapore. 
  • Our Target Price dips to S$8.82 still on SOP valuations.



Order win slower than expected but balance sheet stronger

  • Keppel O&M secured c.S$800m of orders YTD, or 27% of our previous expectation of S$3bn for 2018F. To be more realistic, we now expect the division to clinch S$2bn of orders, still dominated by non-drilling orders. This report is first shared at SGinvestors.io.
  • Operating leverage could be on the mend with most of the restructuring/closure of sub-optimal yards completed. 
  • EBIT margins likely to remain in the region of 2-3% in the next two quarters as work for Awilco semi-subs (clinched early-2018) will only begin by end-2018F.
  • Balance sheet, however, should be boosted US$460m (c.S$620m) by payments from Borr Drilling -- US$288m down payment for the recent sale of five jack-up rigs, and US$176m 80% delivery payment for the second of five KFELS Super B Class rigs delivered in Jun 2018.


Cooling measures in Singapore market priced in

  • Singapore residential projects account for c.7% of its property RNAV and c.30% of FY17 property profit. We now assume slower sales pace for Reflections, Corals and Gardens Residence following the recent cooling measures in Singapore's property market. We also apply a 35% (previously 20%) discount to its property RNAV in line with our downgrade of major Singapore developers’ valuations. As a result, our RNAV of Keppel Corp's property unit now stands at S$3.80 (from S$4.70).
  • We believe the plan to redevelop Nassim Woods (residential) could be put on hold but Keppel Towers (office) could still likely go ahead as the office sub-sector could still see positive dynamics in rental recovery in addition to supply squeeze in new Grade A space in the CBD. This report is first shared at SGinvestors.io.


2Q18F Preview: Net Profit of S$190m (-44% q-o-q, +19% q-o-q)

  • We expect Keppel Corp to deliver 2Q18F profit of S$190m (-44% q-o-q, +19% y-o-y). Property divestment gains likely to shrink q-o-q from S$290m in 1Q18 to S$90m from the divestments of stakes in projects in Shenyang and Vietnam.
  • There were no sale in Tianjin Eco City in 2Q18 but investments should swing into profitability from
    1. mark-to-market gains (+19% q-o-q) for KrisEnegy warrants, and
    2. narrowing losses for KrisEnergy q-o-q.
  • We expect net gearing to improve to c.0.38x from 0.42x in 1Q18 with the Borr Drilling receipts. This could provide ammunition for special dividend (c.S$0.10-0.12) to reward long-term shareholders.


Maintain ADD but target price lowered to S$8.82

  • Our EPS is tweaked by -1-2% for FY18-20F to reflect lower profits from its property and O&M units. Our Target Price is cut to S$8.82 (previously S$10.00), still based on SOP valuations.
  • Potential re-rating catalysts could come from stronger-than-expected gains from its asset recycling plans, stronger-than-expected recovery in Keppel O&M margins and orders, and special dividends. This report is first shared at SGinvestors.io.
  • Downside risks could include prolonged weakness in Singapore's property market.





Lim Siew Khee CGS-CIMB Research | https://research.itradecimb.com/ 2018-07-10
SGX Stock Analyst Report ADD Maintain ADD 8.82 Down 10.000



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