Keppel Corporation - OCBC Investment 2019-07-19: Steady Execution 


Keppel Corporation - Steady Execution 

  • O&M workload to pick up.
  • Net contracts YTD at S$1.9b vs. S$1.7b for 2018.
  • Net gearing higher at 0.82x.

S$356m net profit in 1H19; bulk from property

  • In 2Q19, KEPPEL CORPORATION (SGX:BN4)’s revenue rose 17.2% y-o-y to S$1.78b but net profit fell 38.4% to S$153.4m, bringing 1H19 net profit to S$356.3m.
  • There were S$13m charges related to the M1 acquisition, while depreciation & amortization at S$102m in 2Q19 was higher mainly due to the recognition of right-of-use assets following the adoption of SFRS(I) 16 Leases, as well as consolidation of M1. Excluding these effects, results were generally within expectations.
  • Property made a net profit of S$262m for 1H19, lower than the S$606m in 1H18, which had been boosted by en-bloc sales of development projects. As for Infrastructure, the segment achieved a net profit of S$59m in 1H19 while Investments made a net profit of S$25m.

Expecting O&M workload to pick up

  • The Offshore & Marine (O&M) division made a profit of S$10m in 1H19, compared to a net loss of S$40m in 1H18. Encouragingly, O&M has also started growing its headcount from 10,843 in 1Q19 to 11,582 as at end Jun 2019, in line with the increased workload.
  • The group is “trying hard” to hire appropriate staff and management updated that workload is expected to continue to pick up in 2H19. Net contracts secured YTD totaled close to S$1.9b, more than S$1.7b for the whole of 2018. Close to 60% of the new orders are for LNG and renewables related projects.

Net gearing at 0.82x; to keep below 1x

  • Keppel Corp's net gearing was higher at 0.82x as at end Jun 2019 compared to 0.72x as at end Mar 2019. This was mainly due to S$273m of cash paid to shareholders in May 2019 as the final dividend for FY18, as well as S$224m incurred for the privatisation of Keppel T&T.
  • Management is monitoring its net gearing such that it does not exceed 1x.
  • Keppel Corp has declared an interim dividend of S$0.08 per share for 1H19, compared to S$0.10/share in 1H18.
  • We maintain our fair value estimate of S$7.83.

OCBC Research Team OCBC Investment Research | 2019-07-19
SGX Stock Analyst Report BUY MAINTAIN BUY 7.830 SAME 7.830