Keppel Corporation - OCBC Investment 2021-04-23: Continued Restructuring

KEPPEL CORPORATION LIMITED (SGX:BN4)

Keppel Corporation - Continued Restructuring

Since our last report, Keppel Corporation - OCBC Investment 2021-01-29: Time To Move On in which we had a HOLD rating on the stock, Keppel Corp's share price corrected from S$5.46 before recovering to S$5.33 (2.4% lower) as of 22 April 2021. In comparison, the Straits Times Index rose 9% over the same period.

Keppel Corp provided an update on its 1Q21 operations, delivering a net profit in 1Q21 that was slightly higher compared to the S$160m net profit in 1Q20. Most of the net profit in 1Q21 was from operating income, compared to 1Q20 where Keppel Corp had a sizeable contribution from the reclassification of Keppel Infrastructure Trust (SGX:A7RU).
Net gearing was lower at 0.88x as at 31 Mar 2021, vs 0.91x as at 31 Dec 2020 and 1.00x as at Jun 2020.

Recall that Keppel Corp invested in Kris Energy (SGX:SK3) in 2012, at a time when Brent crude was over US$100/bbl. However Kris Energy started facing problems in 2014 when oil prices plunged, and recently Keppel Corp announced that due to the significant underperformance of its key asset, Cambodia Block A, the consensual restructuring exercise which commenced in 2019 is no longer viable.
We understand that Keppel Corp’s carrying value of S$423m is mostly secured by Kris Energy’s oil and gas assets, but it is hard to determine the actual impact at this point in time given that the NSAI report (which provides estimation of the reserves etc) is not finalised yet.

Meanwhile, Keppel Corp is in advanced discussions with Petrobras on the P-78 FPSO project; if and when the contract is officially awarded, this would provide a boost to the net orderbook (S$3b as at Mar 2021). However, do recall that the management mentioned in its strategic review that moving forward, the Op Co for O&M is to be asset-light as a lot of fabrication work would be outsourced.
With the latest update, we fine-tune our estimates and increase our fair value estimate for Keppel Corp from S$5.20 to S$5.50.
The restructuring of the O&M segment continues and will take time, and in line with Vision 2030, Keppel Corp is continuing with its asset monetisation strategy (none announced in 1Q but several in the works).
See Keppel Corp Share Price; Keppel Corp Target Price; Keppel Corp Analyst Reports; Keppel Corp Dividend History; Keppel Corp Announcements; Keppel Corp Latest News.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2021-04-23

SGX Stock Analyst Report HOLD MAINTAIN HOLD 5.50 UP 5.200