Keppel Corporation - RHB Invest 2019-07-19: Weak 2Q19 Y-o-y Profit, Optimistic Outlook; BUY

KEPPEL CORPORATION LIMITED (SGX:BN4)

Keppel Corporation - Weak 2Q19 Y-o-y Profit, Optimistic Outlook; BUY

Maintain BUY with new SGD7.30 Target Price from SGD7.33, 11% upside, plus 4% yield.
2Q19 results slightly missed, with 1H19 net profit of SGD356m representing 37% of our 2019F pre-results. However, we believe the property division could see stronger numbers in 2H19 – we are encouraged by the early-July strong sales at Seasons Residences.

Property division recorded 2Q19 PBT -38% y-o-y to SGD161m, due mainly to the absence of gains from en-bloc sales of development projects vs 2Q18. This came on the back of property division 2Q19 revenue rising 11% y-o-y, mainly due to higher revenue from China trading projects such as Waterfront Residences in Wuxi, and Serenity Villa in Chengdu.

Offshore & Marine jackup rigs to Borr Drilling vs 2Q18. However, the O&M division recorded 2Q19 pre-tax profit of SGD4m, an improvement vs 2Q18’s SGD11m pre-tax loss.

Keppel O&M secured YTD new contracts of SGD1 launched 193 homes at Seasons Residences Phase 3 in Tianjin Eco-City, and all units were sold within a day – these sales were not included in 1H19 numbers. However, due to the weak 1H19 earnings, we lower FY19F recurring net profit by 8%.

The Board approved 8/share.
As Keppel Corp (SGX:BN4) has multiple businesses with exposure in different industries, we took the SOP methodology to value it, and arrived at Target Price of SGD7.30 based on
- O&M division valued at 1BV of Sembcorp Marine (SGX:S51) (Target Price: SGD1.99, see report: Sembcorp Marine - O&M Pure Play; Reiterate BUY);
- division valued conservatively at 10x FY19F P/E;
- division valued at 40% discount to RNAV – close to the average discount to RNAV applied for China; and
- division, which includes Keppel M1 Ltd.

Leng Seng Choon CFA RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-07-19

SGX Stock Analyst Report BUY MAINTAIN BUY 7.30 DOWN 7.330