Keppel Corporation - RHB Invest 2019-12-19: O&M Orderbook Picking Up; Keep BUY

KEPPEL CORPORATION LIMITED (SGX:BN4) | SGinvestors.io KEPPEL CORPORATION LIMITED (SGX:BN4)

Keppel Corporation - O&M Orderbook Picking Up; Keep BUY

  • Maintain BUY with a SGD7.80 Target Price, 15% upside plus c.4% FY20 yield.
  • We are bullish on KEPPEL CORPORATION (SGX:BN4), as we expect offshore and marine (O&M) earnings to improve from a stronger net orderbook – SGD5.1bn from FY18’s SGD4.3bn. Prior to the O&M earnings pick-up, net profit from its property business should support overall profitability and dividend payments.



YTD-October O&M new contracts secured are valued higher than what was won in 12M18.

  • New contracts secured by Keppel O&M (KOM) YTD were valued at SGD1.9bn (ahead of 12M18’s SGD1.7bn), with close to 60% jobs for LNG and renewables-related projects. KOM’s settlement agreement with Sete Brasil paves the path for the completion of construction of some (or all) of the rigs – which should help drive revenue.
  • KOM’s 3Q19 revenue surge of 52% y-o-y suggests that the recovery is ongoing.


Partial offer by Temasek points to a possible restructuring ahead.



Property segment to sustain Keppel’s earnings.



Valuation – diversified asset structure with huge value unlocking potential.

  • Keppel Corp has multiple businesses in different industries, and we used a SOP approach to value the stock, and arrive at a Target Price of SGD7.80.
  • Our valuation comprises: the O&M division being valued at 1.4x FY20F P/BV, a discount vs the 5-year average of 1.6x P/BV for SEMBCORP MARINE LTD (SGX:S51) (BUY, Target Price: SGD1.60), its infrastructure division being valued at a conservative 10x FY20F P/E, and property segment being valued at 40% discount to RNAV – close to the average discount to RNAV applied for China-listed developers.
  • Key risks include a slowdown in the China property market, and weakness in the global O&M industry.





Leng Seng Choon CFA RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-12-19
SGX Stock Analyst Report BUY MAINTAIN BUY 7.800 SAME 7.800



Advertisement



MOST TALKED ABOUT STOCKS / REITS OF THE WEEK



loading.......



ANALYSTS SAY


loading.......