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

KEPPEL CORPORATION LIMITED (SGX:BN4)

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 (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.

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.

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.

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.

Keppel Corp reiterated its commitment to drive Vision 2030 (V2030). It has established a V2030 transformation office including a 100-day programme to drive results. The 100-day programme, commenced in early Oct, and involves not only divestment but also investment plans to kick start V2030.
O&M strategic review is among the initiatives to be concluded by year end. We believe spinning off the business would be deemed positive allowing Keppel Corp to focus on its other businesses.
See Keppel Corp Share Price; Keppel Corp Target Price; Keppel Corp Analyst Reports; Keppel Corp Dividend History; Keppel Corp Announcements; Keppel Corp Latest News.

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