Keppel Corporation - Phillip Securities 2021-04-25: Operations Picked Up


Keppel Corporation - Operations Picked Up

  • Keppel Corporation (SGX:BN4)'s 1Q21 revenue came in at S$1.9bn (26.6% of FY21e) with net profit also stronger on a y-o-y basis. Results are in-line with our expectations.
  • Keppel O&M’s net orderbook could double to S$6bn if it secures the P-78 FPSO project with Petrobras.
  • Keppel Logistics divestment into Phase 2 of the strategic review process, final offer could come in 3Q21.
  • Maintain BUY on Keppel Corp with SOTP-based target price of S$6.12, with a 10% holding-company discount. Our target price translate to about 1.0x FY21e book value, a slight discount to its 5-year average of 1.05x.

The Positives

Revenue was stable y-o-y

  • Keppel Corp's revenue was stable y-o-y, with higher contributions from Urban Development – which was strong in China, Vietnam and Singapore – and Asset Management, boosted by stronger operating results and marked-to-market investment gains.
  • Keppel O&M’s EBITDA also turned positive with narrower losses, we believe they will look to breakeven by the end of the year.
  • In the Connectivity segment, M1’s EBITDA declined 25% y-o-y to S$55mn due to lower roaming and prepaid revenues.

Keppel O&M’s net order book could double

  • Keppel O&M’s net order book could double to about S$6bn should it clinch the Petrobras P-78 Floating Production Storage and Offloading (FPSO) project worth about S$3bn. It is currently in advanced discussions with Petrobras, but no definitive agreements have been entered into yet.
  • As at end-March 2021, Keppel O&M’s net orderbook stood at S$3.0bn, about 80% of which comprised renewables and gas-related solutions.

Keppel has completed previously announced divestments of three projects in China, Vietnam and the UK.

  • Gains realised totalled S$108mn. It’s net gearing improved to 0.88x in the quarter, compared to 0.90x as at end-December 2020. Had the divestment of Keppel Bay Tower been completed in 1Q21, it would have further reduced the Group’s net gearing to 0.81x.
  • We expect Keppel Corp to realise additional gains in 1H21 as they finalise the sale of a commercial and residential plot in Tianjin Eco-City, which was sold for RMB1.5bn in Mar 2021.

Keppel T&T made progress in its plan to divest its loss-making logistics and channel management business.

  • It is in Phase 2 of the strategic review process. Potential bidders are conducting due diligence and a final offer could come in 3Q21.

The Negatives

We believe Keppel will recognise an impairment for KrisEnergy in the coming quarters.

  • KrisEnergy (SGX:SK3) recently announced that due to the unexpected underperformance of the Apsara Mini Phase 1A oil field in the Block A concession offshore Cambodia (CBA), contrary to earlier projections, the consensual restructuring is no longer viable. As no alternative restructuring plan has been presented by KrisEnergy, there remains material uncertainty over KrisEnergy’s ability to continue operating as a going concern.
  • Carrying values of Keppel Corp’s investment, contract asset and loan receivable, as well as the amount outstanding under the revolving credit facility (RCF) to which Keppel Corp has provided a guarantee via a bilateral contract with DBS amounting to US$318.3mil as at 31 March 2021 are set out below.
    • Amount outstanding under the RCF to which Keppel Corp has provided a guarantee: US$188.7mil.
    • Carrying value of the loan receivable under a credit facility granted by Kepinvest Singapore Pte. Ltd., to KrisEnergy for CBA: US$81.3mil.
    • Carrying value of zero-coupon notes issued by KrisEnergy: US$26.4mil.
    • Carrying value of the contract asset in respect of a construction contract by Keppel Shipyard, for the production barge for the Apsara Mini Phase 1A development: US$22.0mil.

Results summary

Energy & Environment:

  • Revenue from this segment declined by 15% y-o-y in 1Q21 due to lower revenue in the offshore & marine business. Keppel O&M’s revenue dropped in 1Q21 due to the termination of the Awilco rigs. During the quarter, Keppel O&M had secured S$66mn of upgrading and repair contracts for projects including wind turbine installation and gas-related vessels. In 1Q21, they have a workforce of about 19,000 working at their yards and offices in Singapore vs 15,000 in Sept-2020.
  • Management said the recent spike in COVID-19 cases at the dormitories has not affected Keppel Corp. It continues to explore M&A options for its O&M business while holding discussions with potential buyers and charterers of its rig assets.
  • Keppel Infrastructure’s overall performance was steady in 1Q21.

Urban Development:

  • Revenue increased 69% y-o-y in 1Q21. Home sales tripled to 1,360 units led by China, Vietnam and Singapore.
  • In Singapore, recently launched Reef at King’s Dock is about 80% sold, while the Garden Residences is almost fully sold.
  • Tianjin Eco-City in China also sold a commercial and residential land plot in March 2021 for about RMB1.5bn.


  • Revenue was flat y-o-y. M1’s EBITDA declined 25% y-o-y to S$55mn due to lower roaming and prepaid revenues.
  • Keppel T&T has just signed a binding term sheet with leading Philippine fibre broadband provider, Converge, to grant them an Indefeasible Right of Use for one fibre pair on the main trunk of the Bifrost Cable System.

Asset Management:

  • Revenue increased 20% y-o-y, from stronger operating results as well as marked-to-market gains of investments. Keppel Capital’s asset management fees grew to S$42mn from S$35mn in 1Q20.


  • We expect Keppel Corp to speed up the divestment of non-core assets tracking the S$3 – 5bn target in three years. Keppel Corp has identified S$17.5bn of assets to be monetised over time, specifically S$3 – 5bn within three years. They have already divested S$1.2bn of assets, realising an estimated gain of S$120mn. We see the successful divestment of Rigco as a potential catalyst for the Company.

Maintain BUY with unchanged target price of S$6.12

  • We maintain our SOTP-based valuations at S$6.12 based on FY21e segments and maintain our BUY recommendation on Keppel Corp. Our target price is based on sum-of-the-parts (SOTP) valuation with a 10% holding-company discount.
    • We value its Offshore & Marine division at 0.6x book value, about a 16% discount to peers.
    • We value its Property segment at a 40% discount to RNAV and Infrastructure division at 12x FY21e earnings, in-line with peers.
    • We also value M1 at 12x FY21e earnings, a slight discount to listed peers’ average of 13x.
    • We value Keppel Corp’s stake in Sino-Singapore Tianjin Eco-city at 1.5x book value.
  • See Keppel Corp Share Price; Keppel Corp Target Price; Keppel Corp Analyst Reports; Keppel Corp Dividend History; Keppel Corp Announcements; Keppel Corp Latest News.
  • Risks to our view include
    • a prolonged resolution for Rig co,
    • a further weakening of oil prices and
    • a worsening of economic uncertainties.

Terence Chua Phillip Securities Research | 2021-04-25
SGX Stock Analyst Report BUY MAINTAIN BUY 6.120 SAME 6.120