Keppel Corporation - OCBC Investment 2018-10-19: Still Sees Opportunities In Selected Markets


Keppel Corporation - Still Sees Opportunities In Selected Markets

  • O&M turns in S$1.5m profit.
  • Property and infra continue to deliver.
  • Markets still good in Vietnam and parts of China.

Healthy 3Q18 results

  • Keppel Corporation reported a 19.9% y-o-y drop in revenue to S$1.3b and a 14.9% drop in net profit to S$225.7m in 3Q18, bringing 9M18 net profit to S$809.3m or 82% of our full year figure, which we judge to be within expectations.
  • Results were boosted by a S$173.7m gain on disposal of subsidiaries mainly due to the sale Aether Ltd under the property division, amongst others.

O&M turns in S$1.5m net profit – looks to sustain at least breakeven

  • After three consecutive quarters of net losses, the O&M division turned in a S$1.5m net profit in 3Q18.
  • Management mentioned that the division is working hard to ensure that this breakeven is sustainable. YTD, the division has secured contracts worth S$1.4b, more than the S$1.2b of new orders for the whole of 2017.
  • As at end 3Q18, the O&M net order book was S$4.4b, excluding the projects for Sete Brasil.

Property and infrastructure continue to deliver

  • The property division continued to do well, with S$161m net profit in 3Q18 and S$764m in 9M18. In 9M18, about 3,180 homes (1,830 in China, 200 in Vietnam, 230 in Indonesia, 740 in India and 150 in Singapore) were sold, achieving a total sales value of S$1.4b.
  • Looking ahead, the group expects to recognise profits from the sale of some 7,240 units of overseas homes worth about S$2.4b (to be recognised upon completion) from 4Q18 through 2022.
  • As for infrastructure, the segment reported net profit of S$55m in 3Q18 and S$121m in 9M18, due to steady contributions from Environmental Infrastructure and Infrastructure Services.
  • The construction of Keppel Marina East Desalination Plant is progressing well and is more than 50% completed. Commercial operation is targeted for early 2020.

Still seeing opportunities in certain markets

  • Keppel still sees good opportunities in the Vietnamese property market, but is more cautious on Singapore. For China, key markets such as Nanjing continue to exhibit good demand and supply fundamentals.
  • However, with lower valuations for local and overseas property developers, we tweak our estimates and our Fair Value estimate slips from S$8.38 to S$7.97.

Low Pei Han CFA OCBC Investment Research | 2018-10-19
SGX Stock Analyst Report BUY MAINTAIN BUY 7.97 DOWN 8.380