Keppel Corporation - OCBC Investment 2018-09-28: Thinking Ahead, Acting Now


Keppel Corporation - Thinking Ahead, Acting Now

  • Conditional General Offer with SPH for M1.
  • S$227m to privatise Keppel T&T.
  • Manageable transactions for Keppel Corp.

Voluntary conditional GO for M1 – S$2.06/share

Objective: to seek control

  • We believe that Keppel Corp’s objective is for the Offeror to seek control of M1 (i.e. Offeror to hold more than 50% stake), rather than to delist the company. 
  • In addition to synergies with other parts of Keppel Corp’s business, we note that M1, which is in an industry that is being disrupted, requires transformation and bold moves to be undertaken to drive change. This is perhaps more easily executed by an entity taking the lead with more control.

~ ~ Where SG investors share

Proposes to privatize Keppel T&T – not a surprise

  • Keppel Corp also proposed a privatisation of 79.22%- owned Keppel T&T (SGX:K11) by way of a scheme of arrangement with a cash consideration of S$1.91/share. 
  • There has long been talk that Keppel T&T may be privatised by Keppel Corp, so this announcement is not much of a surprise, given
    1. how Keppel T&T’s share price has declined in recent times and
    2. the prospects of the data centre segment and some parts of the logistics business are bright.
  • This is probably a “low-hanging fruit” for the group, and brings to mind Keppel Land’s privatisation in 2015 after Mr. Loh was appointed CEO of Keppel Corp in 2014.

Pro-forma effects from transactions

  • Assuming the Keppel T&T privatisation goes through and the Offeror and concert parties hold 100% of M1 shares at the close of offer, Keppel Corp’s 2017 EPS would have increased from 11.9 S cents to 15.1 S cents on a pro-forma basis, while its net gearing would have increased from 0.46x as at end Dec 2017 to 0.62x, below the 1x net gearing level that it previously mentioned that it will not exceed.

Share price likely recently buoyed by oil prices

  • Ever since our last report, “Keppel Corporation - Staying the pace” on 10 Sep, Keppel Corp’s share price has risen by about 12.5% compared to the STI’s 3.3% over the same period, likely aided by higher oil prices as well.
  • Meanwhile, pending further updates relating to the latest corporate actions, we maintain our fair value estimate of S$8.38 on Keppel Corp

Low Pei Han CFA OCBC Investment Research | 2018-09-28
SGX Stock Analyst Report BUY Maintain BUY 8.380 Same 8.380