KEPPEL CORPORATION LIMITED (SGX:BN4)
Keppel Corporation - A Year Of Transformation
- Keppel Corporation had a strong start to 2019 with about 80% of its orders won in the first half of the year. Importantly, the orders were spread over the whole gamut of shipyard operations – from exploration to production, from oil & gas to renewables. In 2H19, this was overshadowed by Temasek’s partial offer to gain control of the company.
- We continue to like Keppel Corporation as we believe 2020 will be an important year of transformation for the company.
- Maintain BUY. See Keppel Corp Target Price.
A floor price.
- Temasek’s partial offer to acquire an additional 31% of KEPPEL CORPORATION (SGX:BN4) shares appears to have put a floor price on the company at around $6.80/share. Since the offer was announced on 21 Oct 19, Keppel Corp Share Price has averaged S$6.79. However, we still see room for further upside as the company has been executing its plans to engineer greater profitability and returns from its non-offshore marine businesses.
Settlement in Brazil.
- In early-Oct 19, Keppel Corporation announced it had reached a settlement agreement with Sete Brasil for the EPC contracts for its six semi-submersible rigs. See Keppel Corp Announcements. With this overhang on the stock removed, we believe Keppel Corporation deserves a re-rating.
No near-term fix but rig market approaching equilibrium, in our view
- Our analysis of the global oil & gas industry as well as the rig market indicates that the latter has bottomed out. We believe new orders may take time to reappear but at least utilisation rates for most types of rigs have increased in the past 2-3 years.
- In addition, the offshore wind sector presents a very compelling growth angle for Keppel Corporation’s offshore marine segment, given the sector’s material growth prospects. While EVs could potentially present an indirect threat to the offshore marine industry by destroying demand for transportation fuels, we note that Keppel Corporation bought a stake in an advanced lithium-ion battery maker in 1H19.
Maintain BUY.
- Our target price is based on SOTP-valuation. See Keppel Corp Target Price.
- Keppel Corporation’s current one-year forward PE is in line with its 5-year average of 14.5x while its 1-year forward P/B of 1.0x is more than 1SD below its 10-year historical average of 1.5x.
Adrian LOH
UOB Kay Hian Research
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https://research.uobkayhian.com/
2020-01-17
SGX Stock
Analyst Report
7.610
SAME
7.610
