Keppel Corporation - CGS-CIMB Research 2021-03-29: Connecting The Dots ~ World’s First Subsea Fibre Connecting Singapore To The US


Keppel Corporation - Connecting The Dots

  • Facebook, Telekomunikasi Indonesia and Keppel T&T to own/develop a subsea cable connecting Singapore to the West Coast US via Indonesia.
  • Keppel Corp’s key proposition is its ability to fund (via monetisation of other assets) and Keppel Capital’s network of new money.
  • There are synergies to be reaped for Keppel T&T, Keppel Data Centre, M1 and expanded product offering, spanning across international connectivity and data services.

World’s first subsea fibre connecting Singapore to the US

  • The consortium of Keppel T&T (via Keppel Midgard), Facebook and Telekomunikasi Indonesia International entered into an agreement to own and develop the Bifrost Cable System, the world’s first subsea cable system that directly connects Singapore to the west coast of North America via Indonesia through the Java Sea/ Celebes Sea.
  • The project is scheduled to be completed in 2024 and spans over 15,000km. The multiple fibre paired, high performance Bifrost Cable System will be the largest capacity high-speed transmission cable across the Pacific Ocean.
  • Keppel Midgard’s share of the total project costs as a joint build partner will be ~US$350m (or S$467m). Alcatel Submarine Networks (ASN) will supply and install the cable system.

What does Keppel bring to the table?

  • We think funding capability is the key proposition that Keppel Corp (SGX:BN4) brings to the table. The project costs for the Bifrost Cable System will be paid progressively as the construction progresses. For now, we think that Keppel Corp could fund it internally but as the project progresses, Keppel Capital could come in with new funding partners. There would also be some cross selling or the creation of new profit pools by linking up our different connectivity businesses like Keppel Data Centres and M1.
  • We understand that Keppel Corp has had advance discussions with some potential partners who could be co-owning or leasing the fibre pairs. Keppel Corp expects the majority of the fibre pairs to be pre-committed before completion of the construction.
  • This project earmarks a major milestone for Keppel Corp as the transnational critical infrastructure will enhance Singapore’s role as a digital hub, as well as support and accelerate the region’s growing digital connectivity needs.
  • In recent years, cloud giants, including Google, Facebook, Microsoft, and Amazon, have been getting more involved in submarine cable construction projects by investing in them instead of simply paying their operators (traditionally big telcos) to use international bandwidth. We believe that as cloud companies add users and services globally, demand to expand network bandwidth increases.
  • The Facebook consortium recently withdrew its bid to build a subsea cable between California and Hong Kong via Tawan which could be due to political pressure between China and the US.

Reiterate ADD for Keppel Corp with a target price of S$6.40

LIM Siew Khee CGS-CIMB Research | 2021-03-29
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