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.
- In October, Keppel Corp announced that Temasek intends to make a partial offer of SGD7.35/share in cash to acquire an additional 30.55% stake in Keppel Corp. Upon completion, Temasek will own a 51% stake in Keppel Corp. The intention is for Keppel Corp to remain listed on the SGX.
- The partial offer can only be made after the pre-conditions (including domestic and foreign regulatory approvals) have been fulfilled or waived, and this may take several months to meet. See report: Keppel Corporation - Temasek Offer – Prelude For Restructuring; BUY.
Property segment to sustain Keppel’s earnings.
- Keppel Corp’s property division accounted for 66% of 9M19 net profit. As such, we expect property to remain the main earnings contributor over the next few quarters, pending the earnings pick-up from the O&M unit. This diversification provides for continued positive earnings, and a relatively good FY20F dividend yield of 4.4%.
- See Keppel Corp Share Price; Keppel Corp Target Price; Keppel Corp Analyst Reports; Keppel Corp Dividend History; Keppel Corp Announcements; Keppel Corp Latest News.
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
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https://www.rhbinvest.com.sg/
2019-12-19
SGX Stock
Analyst Report
7.800
SAME
7.800
