Keppel Corporation - OCBC Investment 2021-01-29: Time To Move On

KEPPEL CORPORATION LIMITED (SGX:BN4)

Keppel Corporation - Time To Move On

Since our last report, “O&M clarity likely by early 2021” on 30 October 2020, the Keppel Corp's share price staged a nice recovery, rising 30% till our rating turned HOLD on 8 January 2021 when the stock closed at S$5.63. At current levels, we see most of the positives priced in.

Keppel Corp (SGX:BN4)’s S$506m net loss in FY20 compares to a net profit of S$707m a year ago, and the poor showing was mainly due to S$952m of impairments in the offshore & marine segment.
Recall that the bulk of the impairments was incurred in 2Q20. Excluding impairments in both years, FY20 net profit would have been S$446m, compared to S$828m in FY19.
Apart from Keppel O&M, all key business units of Keppel Corp remained profitable in FY20.
Net gearing was lower at 0.91x as at 31 Dec 2020, compared to 0.96x as at end Sep 2020 and 1.00x as at end Jun 2020.

In our earlier report, we mentioned that we expected Keppel Corp to conclude the strategic review of its O&M business by the end of 2020 or early 2021. Yesterday, management announced that it will exit the offshore rig building business, after completing the existing rigs under construction. The group will also progressively exit low value-adding repairs and other activities with low bottom line contribution, and focus on higher value-adding work.
At the same time, Keppel Corp is also exploring inorganic options for the O&M business, but there is no assurance that any transaction will materialise.
Management believes that the organic transformation of Keppel O&M will enhance its competitiveness and attractiveness by making it a more asset-light and nimble entity, amongst other factors, if the group were to undertake any inorganic action. The restructuring will commence with immediate effect and is expected to be executed over the next two to three years. This is not expected to have a material impact on the NTA/share or EPS for the current financial year.

Meanwhile, Keppel Corp will also divest its third-party logistics business in Southeast Asia and Australia as well as its channel management business to a third party. As for Urban Development, net profit was S$438m in FY20, lower mainly due to lower contribution from Keppel Land. Keppel Corp's total residential landbank stands at about 54,000 homes with the majority in China and Vietnam, and a growing portfolio in India.
A final dividend of S$0.07/share was declared, compared to S$0.12/share a year ago. This brings the Keppel Corp's FY20 full year dividend to S$0.10/share vs S$0.20/share a year ago.
See Keppel Corp Share Price; Keppel Corp Target Price; Keppel Corp Analyst Reports; Keppel Corp Dividend History; Keppel Corp Announcements; Keppel Corp Latest News.
With the reorganization of Keppel Corp’s business segments, we update our estimates and our fair value slips from S$6.00 to S$5.20.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2021-01-29

SGX Stock Analyst Report HOLD DOWNGRADE BUY 5.200 DOWN 6.00