Keppel Corporation - RHB Invest 2020-04-30: Infrastructure’s Strength Amidst General Weakness

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

Keppel Corporation - Infrastructure’s Strength Amidst General Weakness

  • Maintain BUY, with lower SGD7.40 Target Price from SGD7.60, offering 24% upside with c.3% yield.
  • Keppel Corp (SGX:BN4)'s results were below expectations, with 1Q20 net profit of SGD160m (down 21% y-o-y) representing 18% and 20% of our pre-results and Street’s full-year estimates.
  • We cut our earnings over the next couple of years due to the impact from COVID-19, but we believe the longer term potential is good (the O&M net orderbook of SGD4.0bn at the end of March, is close to the SGD4.4bn amount at the end of December 2019).



Infrastructure division recorded a surge in 1Q20 net profit

  • Keppel Corp's Infrastructure division recorded a surge in 1Q20 net profit to SGD174m vs SGD16m in 1Q19. This incorporates a gain of SGD131m from the reclassification of Keppel Corp’s interest in Keppel Infra Trust (SGX:A7RU) from its associate company to investment. Excluding this one-time gain, infrastructure earnings would have doubled y-o-y, with higher contributions from Energy Infrastructure.




Signs of promise for China property market.

  • The property division’s 1Q20 net profit of SGD35m was 73% lower y-o-y, due to a gain in 1Q19 from the disposal of a partial interest in Dong Nai Waterfront City, Vietnam. However, Keppel Land sold 450 homes in 1Q20, 15% higher y-o-y. Management said that recent land sales in China (post COVID-19 lockdown) show promise as developers are bidding again and prices seem to stabilize.


Renewables and gas-related solutions to help Keppel O&M future revenue.

  • O&M division’s 1Q20 net profit of SGD3.0m was down from 1Q19’s SGD6m, due to share of losses from associated companies. Keppel Corp’s 1Q20 O&M operating profit was a strong SGD28.0m, versus 1Q19’s SGD3.0m. Whilst a lower crude oil price is a headwind, more than 70% of Keppel O&M’s orderbook of SGD4.0bn comes from renewables and gas-related solutions.


We cut net profit 11% in FY20F and 14% in FY21F



Value unlocking potential.






Leng Seng Choon CFA RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-04-30
SGX Stock Analyst Report BUY MAINTAIN BUY 7.40 DOWN 7.600



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