Keppel Corporation - CGS-CIMB Research 2020-04-29: No Adverse Material Change So Far


Keppel Corporation - No Adverse Material Change So Far

  • Keppel Corp's 1Q20 net profit of S$160m is in line with our S$150m expectation, forming c.24% of our and 19% of consensus FY20F.
  • Infrastructure profit hit a record S$174m in 1Q from MTM gain. O&M was profitable; the enhanced JSS could help the unit avoid EBIT losses in 2Q20F.
  • Property profit was soft but recent launch in China was encouraging. We think Temasek’s partial offer is still valid.

Infrastructure MTM gain of S$131m

  • Keppel Corp (SGX:BN4)’s 1Q20 group profit of S$160m (-21% y-o-y, -15% q-o-q) was lifted by infrastructure’s record profit of S$174m. The unit recognised a marked-to-market (MTM) gain of S$131m from the reclassification of Keppel Corp’s interest in Keppel Infrastructure Trust (SGX:A7RU) from an associated company to an investment, following the loss of significant influence over Keppel Infrastructure Trust (Keppel Corp currently holds 18% stake). Without this, infrastructure’s profit was up 84% q-o-q and 171% y-o-y, thanks to stronger performance from power and gas, and data centres.

Offshore and Marine (O&M) profitable; JSS could help

  • O&M delivered 1Q20 EBIT profit of S$28m (5% EBIT margin), beating our expectation of 2.5%. However, net profit (S$3m vs. a loss of S$100m in 4Q19) was affected by share of losses in Floatel. Keppel Corp's O&M order book of S$4bn as at end-Mar would cushion any drought in orders in 2020F, in our view.
  • Currently, only urgent essential works such ship repairs are ongoing. Shipbuilding activities have scaled down in its six yards in Singapore; the two in the Philippines are not in operation. Its Nantong yard in China is back at work.
  • Keppel Corp has c.7k O&M workers, of which c.30% qualify for the enhanced Job Support Scheme (JSS) from the Singapore government; we estimate c.S$11m of cost relief in 2Q20F.

Property segment: cautiously optimistic

  • Property net profit of S$35m (-80% q-o-q, -73% y-o-y) was softer than our expected S$88m, mainly due to deferral in the completion of projects as well as weaker investment income (loss of S$11m) with i12 Katong under redevelopment.
  • Keppel Corp's property sales in China have been encouraging with 330 units sold in 1Q20, of which more than 200 units were sold post Covid-19 lockdown in Feb-Mar. Last Saturday, it launched a 251-unit residential project in Wuxi; 164 units (65%) were sold over the weekend, at comparable y-o-y prices.

Maintain ADD and SOP-based Target Price of S$7.48

LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2020-04-29
SGX Stock Analyst Report ADD MAINTAIN ADD 7.480 SAME 7.480