KEPPEL CORPORATION LIMITED (SGX:BN4)
Keppel Corporation - No Deal From Temasek
- Temasek has invoked the MAC pre-condition and will not proceed with its partial offer for Keppel Corp (SGX:BN4). The SIC has confirmed and has no objection to this.
- We expect Keppel Corp's share price to further correct in the near term to the previous trough of 0.82x P/BV or c.S$4.88.
- Our SOP Target Price remains at S$6.46. 2H earnings recovery and stronger gains from asset recycling are catalysts. ADD after share price shock subsides.
No deal
- Temasek has decided to invoke the material adverse changer (MAC) pre-condition, and will not proceed with its partial offer for Keppel Corp. The making of the partial offer by Temasek is subject to the satisfaction and/or waiver of a number of pre-conditions, which include there being no MAC in Keppel Corp’s financial performance and conditions, among others. See Keppel Corp Announcements and response.
- Given the recent significant impairment (amounting to S$919m) taken by Keppel Corp in 2Q20 which resulted in a net loss of S$699m, the MAC clause was breached. Temasek had earlier announced that a decision would be made no later than 31 Aug 2020. This decision to walk way is slightly earlier than expected.
Not unreasonable to walk away
- Recall that Temasek may need to fork out a total of S$4.08bn for the additional 30.55% stake in Keppel Corp at S$7.35/share. We believe Keppel Corp's share price weakness has already factored in some risk of deal cancellation.
- Relative to its peers, the price that Temasek offered would have implied 1.28x NAV of Keppel Corp’s 1H20 NAV of S$5.70 (vs. 1.21x previously on 9M19’s S$6.06). Sembcorp Marine (SGX:S51)/ Sembcorp Industries (SGX:U96) traded at 0.4x/0.5x 1H20 NAV, respectively.
How will this impact the long-term merger?
- Without Temasek’s partial offer, there will be no change in Keppel Corp’s business model and its 2030 vision but our hopes of a potential merger between the yards (KEP O&M and Sembcorp Marine) may not happen so soon.
- The EGM for Sembcorp Marine’s rights issue and de-merger from Sembcorp Industries takes place on 11 Aug, which may result in Temasek having an ultimate direct stake in Sembcorp Marine ranging from > 30% to 58%, depending on the % of minority shareholders of Sembcorp Industries and Sembcorp Marine take up their rights.
Maintain ADD for the medium term; valuations not expensive
- Our SOP Target Price for Keppel Corp remains at S$6.46. A 2H20F earnings recovery and stronger gains from asset recycling are catalysts. ADD only after the share price shock subsides. The stock trades at -1 s.d. of 10-year mean.
- See Keppel Corp Share Price; Keppel Corp Target Price; Keppel Corp Analyst Reports; Keppel Corp Dividend History; Keppel Corp Announcements; Keppel Corp Latest News.
- We expect the Keppel Corp's share price to see support at the previous trough of 0.82 P/BV in 2016 (previous oil price crisis). Assuming the share price reaches S$4.88, the market would have significantly discounted its O&M business to distress values of 0.2x P/BV (see Fig1 in PDF report attached below).
- Downside risks include prolonged recovery from COVID-19.
LIM Siew Khee
CGS-CIMB Research
|
https://www.cgs-cimb.com
2020-08-10
SGX Stock
Analyst Report
6.460
SAME
6.460
