Keppel Corporation - OCBC Investment 2021-06-25: Long-awaited Merger Of O&M

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KEPPEL CORPORATION LIMITED (SGX:BN4)

Keppel Corporation - Long-awaited Merger Of O&M

• Keppel Corporation (SGX:BN4) and Sembcorp Marine (SGX:S51) entered into non-binding MOU with a view to combine Keppel O&M and Sembcorp Marine.
• Terms of combination still being discussed; may take several months.
• Keppel Corporation intends to distribute to its shareholders all the Combined Entity shares ultimately.

Price action since last report

• Since our last report, “Keppel Corporation - OCBC Investment 2021-04-23: Continued Restructuring” in which we had a HOLD rating on the stock, Keppel Corp's share price corrected from S$5.33 to S$5.11 (4.2% lower) on 24 June 2021. In comparison, the Straits Times Index fell 1.2% over the same period.

Combining Keppel O&M and Sembcorp Marine

• Both Keppel Corporation and Sembcorp Marine have entered into a non-binding MOU with regards to exclusive negotiations with a view to combine Keppel O&M and Sembcorp Marine. Keppel Corporation and the Combined Entity will enter into a strategic partnership, pursuant to which Keppel Corporation will hold 50% of a JV that will be established between Keppel Corporation and Combined Entity. This would allow Keppel Corporation to continue accessing Keppel O&M's capabilities required for its projects.
• The Combined Entity is envisaged to be a listed entity, and Sembcorp Marine's shareholders will hold shares in the Combined Entity, while Keppel Corporation will receive shares in the Combined Entity and a cash consideration of up to S$500m (or a cash component with the economic equivalent effect).

Intends to distribute to shareholders all the Combined Entity shares

• If the proposed transactions are successfully completed, it is intended that shareholders of Keppel Corporation will receive in specie all of the Combined Entity shares received. This means that Keppel Corporation itself will not be a shareholder of the Combined Entity ultimately.

Also signs non-binding MOU with Temasek unit

• Keppel Corporation has also signed a non-binding MOU with a wholly-owned subsidiary of Temasek for Keppel O&M's legacy rigs and associated receivables to be sold to a separate asset co that would be majority owned by external investors. The two proposed transactions will be inter-conditional and pursued concurrently.

Terms of combination still being discussed; may take several months

• Keppel Corporation and Sembcorp Marine will undertake mutual due diligence and discuss terms of the potential combination, which is expected to take several months. Discussions are also at preliminary stage and there is no certainty that the potential combination will take place.
• 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.
• In terms of ESG performance, Keppel Corporation fares well in labour management, health & safety, governance and opportunities in clean tech. We update our estimates and also incorporate an ESG premium in our valuations, such that our fair value estimate for Keppel Corporation rises from S$5.50 to S$6.33.
• Meanwhile, Keppel Corporation continues with its asset monetisation plans in line with Vision 2030 strategy.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2021-06-25

SGX Stock Analyst Report BUY UPGRADE HOLD 6.33 UP 5.500