Keppel Corporation 3Q20 business update - DBS Research 2020-10-30: All Eyes On O&M’s Strategic Review


Keppel Corporation 3Q20 business update - All Eyes On O&M’s Strategic Review

  • Keppel Corp's 3Q20 earnings significantly lower y-o-y.
  • While O&M remains in the red and overseas property home sales have slowed down, Infrastructure, M1 and asset management businesses were resilient.
  • O&M’s strategic review could be concluded by the end of the year, a potential re-rating catalyst.
  • Good entry point; Reiterate BUY on Keppel Corp; target price unchanged.

Keppel Corp's 3Q20 in positive territory but lower y-o-y.

  • Keppel Corp (SGX:BN4) guided that it was profitable in 3Q20, though net profit was significantly lower year-on-year (3Q19: S$159m net profit). All key business units were profitable during the quarter, except for Keppel O&M. As a recap, Keppel Corp reported huge losses of S$698m in 2Q20 due to massive O&M impairment.
  • Group revenue up ~20% q-o-q to S$1.6bn in 3Q20, bringing 9M20 revenue to S$4.8bn (down 10% y-o-y).
  • Net gearing dipped slightly 0.96x as of end Sept-2020, from 1.00x a quarter ago.

O&M remains in the red.

  • Keppel O&M generated revenue of S$1.1bn for 9M20, down 21% vs S$1.4bn for 9M19. Work has resumed at its Singapore yards with workforce of 15k back at work (~70% of pre-COVID full workforce of ~22- 23k), up from only 5k in early July. Orderbook inched up to S$4.1bn from S$3.5bn a quarter ago following a large renewable vessel order.

Property sales affected by COVID.

  • While Singapore home sales picked up, sales were slower in China due to economic headwinds and Vietnam due to slower approval for new launches. Tianjin Eco-city sold a plot of land in Oct-2020, yielding S$18m gain to Keppel Corp.

Keppel Infrastructure is resilient.

  • While revenue declined 15% y-o-y to S$1.7bn for 9M20, EBITDA was stable at S$119m vs S$115m for 9M19.
  • M1’s EBITDA was also steady, at S$202m for 9M20 vs S$211m for 9M19. Asset management fees increased 17% y-o-y to S$123m for 9M20.

Executing V2030; 100-day Programme.

Pei Hwa HO DBS Group Research | https://www.dbsvickers.com/ 2020-10-30
SGX Stock Analyst Report BUY MAINTAIN BUY 5.500 SAME 5.500