Keppel Corporation - CGS-CIMB Research 2021-05-03: Building Up Gains


Keppel Corporation - Building Up Gains

  • Recent divestment/restructuring gains announced by Keppel Corp could alleviate concerns of potential impairment exposure to KrisEnergy. These include the reduction of its stake in a property subsidiary and gains from Floatel’s restructuring. We project total gains of S$447m in FY21F.
  • Reiterate ADD on Keppel Corp and SOP-based target price of S$6.40; announcement of new growth initiatives and selling/chartering of stranded rigs, order wins are key catalysts.

Transfer of stake in Tianjin Fushi – S$100m gain

  • Keppel Corp (SGX:BN4) entered into a cooperation framework agreement with Sino-Ocean Group Holding’s subsidiaries (Tianjin Pulida Real Estate Construction and Development and Qingdao Yuanjia Real Estate) to jointly develop eight plots of land (28.7 hectares) in the eastern part of Tianjin Binhai New Area.
  • The agreement was entered into by Keppel Corp’s subsidiaries, Changzhou Fushi and Tianjin Fushi. Tianjin Pulida has agreed to pay Changzhou Fushi RMB348m (S$71.6m) for a 51% equity stake in Tianjin Fushi, which owns the eight plots of land. Tianjin Pulida will also extend loans to Tianjin Fushi equivalent to RMB109.8m (S$22.6m), which will be used to repay existing loans from Changzhou Fushi and its affiliates.
  • These will reduce Changzhou Fushi’s stake in Tianjin Fushi from 100% to 49%. A gain of ~S$100m is to be recognised in Dec 21 when the transfer is complete.

Restructuring gains from Floatel – S$187m

  • Keppel Corp’s associate, Floatel, reported a net profit of ~U$551m in 1Q21, which included a restructuring gain of US$578m related to forgiveness of indebtedness and accrued interests. Keppel Corp will equity account Floatel’s 1Q21 results, amounting to ~S$241m, including share of the restructuring gain of ~S$269m.
  • Floatel also reported additional impairment of US$81m in 4Q20, a share of which Keppel Corp will also equity account for. The net financial impact on Keppel Corp will be S$187m, which could be recognised in 2Q21.

KrisEnergy exposure

  • KrisEnergy (SGX:SK3) updated that it has received the independent review of the Apsara field’s performance by Netherland, Sewell & Associates (NSAI), which concluded that estimated ultimate recovery from the five development wells at the Apsara Mini Phase 1A development (Apsara 1A) was likely to be a small fraction of the predevelopment estimates due to significantly lower volume of hydrocarbon-inplace connected to the wells and the geological complexity resulting in smaller oil accumulations. The lower production from the Apsara wells will have a substantial adverse impact on revenue generated from Apsara 1A despite the recovery in benchmark oil prices.
  • Keppel Corp is still assessing the financial impact of the above, which requires the completion of an analysis of the impact of the NSAI report on the cashflows of the Apsara 1A and any impact from the failure of the restructuring on KrisEnergy’s other assets. The carrying value of Keppel Corp’s investment in KrisEnergy stands at S$423m.
  • See

LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-03
SGX Stock Analyst Report ADD MAINTAIN ADD 6.400 SAME 6.400