Keppel Corporation - RHB Invest 2019-06-10: Asset Value Waiting To Be Unlocked


Keppel Corporation - Asset Value Waiting To Be Unlocked

  • Maintain BUY and SOP-based SGD7.33 Target Price from SGD7.92, 23% upside, plus 4% yield.
  • We like Keppel Corporation for its potential for prime landbank-value unlocking in China and Vietnam.
  • Keppel Corporation's O&M division would see recovery in contract flows, with FPSO conversion jobs expected to pick up in 2019, after securing SGD1.8bn of 2019 O&M orderbook YTD (exceeding SGD1.7bn for FY18).

Management is targeting mid-to-long term ROE of 15%

  • Management is targeting mid-to-long term ROE of 15% for KEPPEL CORPORATION LIMITED (SGX:BN4) by being a powerhouse of urbanisation solutions. It sees this as a realistic target, given the average 17.7% ROE recorded from 2009 to 2018.

Property division accounted for the bulk of group earnings.

  • Property accounted for 99% of Keppel Corporation’s EBIT. While government policies have tightened up in recent years, we believe its China property business would still yield significant profit in the coming years, as its business is focused largely in prime areas, namely, Chengdu metropolis, Greater Bay Area, Yangtze River Delta and Jing-Jin-Ji.

Huge overseas landbank unlocking potential.

  • Keppel Corporation has 3m sqm of remaining residential area for sale in China – mainly in Shanghai, Chengdu, Wuxi and Tianjin. Assuming ASP per sqm of CNY10,000, the GDV is c.CNY30bn. Of the 21,584 remaining units for sale in China, ~8,500 are ready to be launched from 2019 to 2021.
  • In Vietnam, Keppel is developing the Saigon Sports City township in a prime area near Ho Chi Minh City (HCMC).

O&M division probably saw its worse in 2018.

  • We believe Keppel Corporation’s offshore and marine (O&M) division saw its worse in 2018, with orderbook replenishment expected to be ramped up in 2019, driven by floating production storage and offloading (FPSO) conversion jobs from higher project sanctions (especially in Brazil and Mexico) expected as oil prices stabilise. Chances of winning the conversions, in our opinion, is high given Keppel Corporation’s impeccable track record in FPSO conversions.
  • LNG-related projects should also support the O&M division.
  • Sete Brasil’s auction of two uncompleted Keppel semi subs is also a positive development.

Leng Seng Choon CFA RHB Securities Research | 2019-06-10
SGX Stock Analyst Report BUY MAINTAIN BUY 7.33 DOWN 7.920