KEPPEL CORPORATION LIMITED (SGX:BN4)
Keppel Corporation - Looking Forward To 100-Day Plan Outcome
- In its 3Q business update, Keppel Corp reported group revenue of S$4.818bn for 9M20, 74% of our full-year forecast. We deem this in line.
- 3Q20 net profit was significantly lower y-o-y (3Q19: S$159m). All segments were profitable in 3Q20 except O&M (flattish q-o-q revenue, in our estimate).
- We look forward to Keppel Corp’s 100-day transformation plan (from early-Oct) which includes an O&M strategic review update.
All segments profitable except O&M
- This is Keppel Corp (SGX:BN4)’s first voluntary business update for 3Q and 9M, following the adoption of semiannual reporting of its results. 9M20 group revenue was S$4.818bn (-10% y-o-y), in line with our forecast. See Keppel Corp Announcements.
- Most of its businesses performed better than management’s expectations except for offshore & marine (O&M), which was the only segment still in a loss position in 3Q20.
- O&M achieved positive gross profit but revenue was not sufficient to cover the overheads. We estimate O&M 3Q20 revenue to be flattish q-o-q at S$261m. Safety measure restrictions, and with its workforce resuming work only gradually, capped O&M's productivity. We believe revenue could improve q-o-q in 4Q20F as more workers return to the yard.
- Keppel Corp's current active O&M workforce in Singapore is 15k vs. 5k at end-Jul. O&M won S$900m worth of new contracts YTD, including S$600m renewables contracts.
Keppel's 100-day plan includes update on its O&M strategic review
- Keppel Corp established a Vision 2030 transformation office with a 100-day programme (starting early-Oct) to execute its plan. This includes an update on its strategic review for O&M. A full divestment of the O&M segment could be a re-rating catalyst although valuations may not be attractive in the current market.
- Other possibilities include
- reduced stake in O&M, or
- retaining only the renewable energy aspects of the business, and
- merger with Sembcorp Marine (SGX:S51).
- Cost-cutting measures will result in S$90m of overhead cost savings starting from FY21F for O&M (read: scaling down operations).
Urban development (property + Tianjin Eco-city)
- Overall home sales grew 3% q-o-q to 800 units in 3Q20, driven by Singapore (+433%, 130 units). China home sales slowed 26% q-o-q (-190 units) due to weaker consumer confidence and fewer projects launched. Vietnam sales declined 40% y-o-y to 30 units, capped by slower approval for new launches.
- Tianjin Eco-City, included in China's urban development, sold a residential plot (79,684 sq m) in Oct, with about S$18m gain.
Resilience in Infrastructure, Connectivity and Asset Management
- EBITDA for Infrastructure was up 3% y-o-y to S$119m for 9M20, M1's EBITDA was stable y-o-y at S$202m. Keppel Capital’s management fees grew 17% y-o-y to S$123m.
- We think the near-term re-rating catalysts for Keppel Corp are:
- outcome of its O&M strategic review, and
- y-o-y earnings growth in FY21F.
- 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 Keppel Corp's share price to trade up to its long-term mean of 12.8x 12M forward P/E or 1.9x P/BV. Maintain ADD with unchanged SOP-based Target Price. See the SOP breakdown in PDF report attached below.
- Downside risk: economic recovery taking longer than expected post-Covid outbreak.
LIM Siew Khee
CGS-CIMB Research
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https://www.cgs-cimb.com
2020-10-29
SGX Stock
Analyst Report
6.460
SAME
6.460
