Keppel Corporation - CGS-CIMB Research 2019-05-08: Power Up


Keppel Corporation - Power Up

  • KEPPEL CORPORATION LIMITED (SGX:BN4)’s offshore & marine division has added a S$560m contract for an offshore converter station to its order book, bringing YTD wins to S$1.5bn.
  • The contract was won by the Keppel FELS/Aibel AS consortium, with most of the jobs by Keppel to be completed by end-2022.
  • We estimate high single-digit EBIT margin for this EPC contract and expect positive share price movement with the win. Maintain ADD and Target Price of S$8.41.

Adding S$560m to its O&M orderbook

  • Keppel FELS and Norwegian leading services provider in the offshore wind sector, Aibel AS, have won a contract from TenneT Offshore GmbH comprising the design, engineering, procurement, construction, installation and commissioning of a 900MW offshore converter station and onshore converter station. Keppel FELS share of the contract is c.S$560m.
  • Together with subcontractor ASEA Brown Boveri (ABB), the consortium will also undertake the installation and start-up operations of the offshore and onshore converter stations on site in Germany.
  • Aibel’s scope of the work is engineering and procurement while Keppel FELS’ yard in Singapore will be constructing the converter platform. Aibel will install High Voltage Direct Current (HVDC) conversion equipment, including commissioning transport and installation of the complete converter platform offshore.

Progressive payment and most work to be done by end-2022

  • The project, named DolWin5, is scheduled to go live in 3Q24 but most of the shipyard work will be recognised by end-2022.
  • The contract is expected to be on progressive payment terms, and we estimate high single-digit EBIT margin for the shipyard work.

Keppel had a similar experience in 2013

  • An offshore converter is an HVDC link built to transmit offshore wind power to the power grid. When DolWin5 is completed, it will be able to receive power from three offshore wind farms and convert HVDC before sending it to the onshore converter station via subsea cables. The onshore converter station will then convert the HVDC back to High Voltage Alternative Current (HVAC) and transmit to the grid.
  • Most of these platforms such as DolWin2 (DolWin Beta) and BorWin gamma, transmitting electricity from the North Sea to mainland Germany, were built by Dubai Drydocks.
  • Keppel was part of a similar project via a consortium between Keppel Verolme and AREVA to install a 400MW offshore substation off the coast of Germany in 2013. No major cost overrun was noted for the project.
  • We are positive on the contract win and keep our order wins target for 2019 at S$2.5bn. Our Target Price of S$8.41 is based on SOP valuations.
  • Stronger-than-expected order wins is a key catalyst.
  • Key risk is conglomerate execution risks.

LIM Siew Khee CGS-CIMB Research | 2019-05-08
SGX Stock Analyst Report ADD MAINTAIN ADD 8.410 SAME 8.410