Keppel Corporation - CGS-CIMB Research 2021-05-10: Big Win Of The Decade

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KEPPEL CORPORATION LIMITED (SGX:BN4)

Keppel Corporation - Big Win Of The Decade

• The US$2.3bn (~S$3bn) order win from Petrobras is the biggest contract secured since 2012, bringing Keppel Corp (SGX:BN4)’s order book to ~S$6bn.
• Partnering with Korean Hyundai Heavy Industries for the first time, ~70% of the work will be carried out in Keppel Corp’s yards in Brazil and China.
• The sizeable win firms up yard earnings visibility till 2024, possibly turning Keppel Offshore & Marine to profitability by 2H22F. Maintain ADD on Keppel Corp with target price S$6.40.

Biggest single contract with no capex expansion required

• Keppel Offshore & Marine has secured a contract from Petrobras, for the turnkey delivery of P-78, a Floating Production, Storage and Offloading vessel (FPSO). The contract is on an engineering, procurement and construction (EPC) basis. Keppel Corp will build the topside modules weighing 43,000 metric tonnes (MT) at its shipyards in Singapore, China and Brazil, as well as undertake the integration and commissioning works of the FPSO.
• Keppel Corp is also partnering with Hyundai Heavy Industries for the first time, as the Korean yard provides the 85,000MT hull and the living quarters for 240 persons.
• The contract win is a testament to Keppel Corp moving up the value chain without significant capex expansion as such sizeable structures were typically built by the Korean yards, given the latter’s capacity.
• Scheduled for completion in late-2024, the FPSO will transit to the Buzios field, where Keppel Offshore & Marine will carry out the final phase of offshore commissioning works.
• With production capacity of 180,000 barrels of oil per day (bopd), 7.2m cubic metres of (mcbm) gas per day and a storage capacity of 2 million barrels of oil, the P-78 will rank among the largest in the global operating fleet of FPSOs.

O&M could turn profitable in 2H22

• With this, Keppel Corp secured a total of ~S$3.8bn of new orders year-to-date with order book doubled from end-2020 (S$3.3bn) to S$6bn currently.
• The contract is structured based on milestone payment terms with 70% of work scope attributable to Keppel Corp. Construction to start in 1Q22, starting mostly in Korea, China and Brazil. We estimate mid-to high-single digit EBIT margin for this project, and likely to see some contribution from 2H22 and potentially turn O&M to profitability. We expect Keppel Offshore & Marine to be in a loss of ~S$55m in FY21F.

Maintain ADD on Keppel Corp with target price of S$6.40 on SOP valuations

• See
  • Keppel Corp's Share Price,
  • Keppel Corp's Target Price,
  • Keppel Corp's Analyst Reports,
  • Keppel Corp's Dividend History,
  • Keppel Corp's Announcements,
  • Keppel Corp's Latest News.
• With this much anticipated contract in the bag, the upcoming catalysts to Keppel Corp include divestment/charting of stranded rigs, re-contract of halted Sete Brasil semi-subs and announcement of new growth initiatives. Medium-term catalyst: divestment of O&M.

LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-10

SGX Stock Analyst Report ADD MAINTAIN ADD 6.400 SAME 6.400