Keppel Corporation - OCBC Investment 2019-10-18: Steady Core Operations

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KEPPEL CORPORATION LIMITED (SGX:BN4)

Keppel Corporation - Steady Core Operations

• Underlying operations remain healthy.
• O&M hiring picks up pace.
• Continue to see value in property portfolio.

Lacklustre results but property is lumpy in nature

• KEPPEL CORPORATION LIMITED (SGX:BN4) reported a 59.6% y-o-y rise in revenue to S$2.1b but saw a 34.9% fall in operating profit to S$183.6m in 3Q19 due to the absence of one-off items which boosted 3Q18 numbers. This brought net profit down 29.7% to S$159.3m in 3Q19.
• Net profit for 9M19 at S$515m was 37% lower compared to a year ago as the group benefited in 9M18 from the en-bloc sales of development projects in China and Vietnam, as well as gains from the divestment of a commercial development in Beijing, which amounted to S$544m.
• Meanwhile, underlying operations remained healthy.

Segmental breakdown

• In 3Q19, the O&M division’s pre-tax profit was S$8m, S$2m below the same period last year.
• Pre-tax profit for the Property division fell by S$121m to S$123m mainly with the absence of divestment gain, amongst other factors.
• For the Infrastructure division, pre-tax profit grew by S$32m to S$92m, while the Investments segment saw a S$16m fall to S$4m.

O&M is not just about oil rigs

• After securing new orders of S$1.9b in 9M19, O&M’s net order book stood at S$5.1b, excluding the Sete rigs. Gas solutions comprised S$2.7b of this figure, while renewables accounts for S$0.7b. Looking ahead, the group expects to secure more orders from these growing markets.
• YTD, the O&M workforce has increased by about 2,100, ahead of earlier guidance of 1,800 new hires for 2019. Most of the new hiring in 3Q were for roles outside Singapore.

Property segment focused on core markets while scaling up in others

• In 9M19, the Property division sold about 3,520 homes, comprising about 190 in Singapore, 2,330 in China, 660 in Vietnam, 110 in Indonesia and 230 in India. The division remains focused on strengthening its presence in its key markets such as Singapore, China and Vietnam and scaling up in other markets such as Indonesia and India.
• Meanwhile, as at end Sep 2019, the group’s net gearing was 0.88x compared to 0.82x as at end Jun.
• We maintain our Fair Value estimate of S$7.58 on the stock.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2019-10-18

SGX Stock Analyst Report BUY MAINTAIN BUY 7.580 SAME 7.580