Keppel Corporation - Phillip Securities 2021-06-09: Final Resolution On KrisEnergy

KEPPEL CORPORATION LIMITED (SGX:BN4) | SGinvestors.io KEPPEL CORPORATION LIMITED (SGX:BN4)

Keppel Corporation - Final Resolution On KrisEnergy

  • Keppel Corp (SGX:BN4) will recognise a loss of S$318mn in respect of its exposure to KrisEnergy (SGX:SK3) in its first-half 2021 financial results. Total assessed recoverable amount is S$105.2mn. Recoverable amount and any further loss provisions will be re-assessed at the end of each subsequent financial reporting period.
  • No impact on Keppel Corp's FY21e interim and final dividend from latest impairment. Maintain BUY and SOTP-based target price of S$6.12, with a 10% holding-company discount.



Keppel Corp to book a loss of S$318mn on KrisEnergy



The Positives


Approaching final resolution for KrisEnergy.

  • Keppel Corp benefits from a comprehensive first ranking security package over the assets of the KrisEnergy group. In view of KrisEnergy’s filing of a winding-up petition, Keppel Corp is now implementing detailed recovery plans to maximise recoveries.
  • KrisEnergy said it has not been able to propose an alternative restructuring plan to DBS, the provider of a US$200mn revolving credit facility, and Keppel Corp, which bears the main economic risk of the revolving credit facility. Therefore, the facility will not be extended as stipulated conditions have not been met. DBS has cancelled total commitments under the facility and declared all loans now payable on demand.
  • Having evaluated the potential financial impact of the carrying values of its KrisEnergy investment as a result of these developments, Keppel Corp will recognise a loss of S$318mn in respect of its exposures to KrisEnergy in its 1H21 financial results. The loss is measured by estimating the recoverable amounts of the various assets of KrisEnergy, less its obligations in connection with the revolving credit facility.
  • The estimated recoverable amount is S$105.2mn (S$423.2mn – S$318mn), which Keppel Corp has assessed with professional advice. The recoverable amount and any further provision for losses will be re-assessed at the end of each subsequent financial reporting period.

No impact on interim and final dividend.

  • When declaring interim and final dividends for the current financial year, Keppel Corp will take into account, among other things, available profits and cash flows after ring fencing its impairment loss on this non-core investment.


Outlook

  • We lower our Keppel Corp's FY21e profit forecast by 37% to S$424mn after incorporating the S$318mn impairment loss. That aside, we remain positive on the group’s prospects for this year.
  • We expect Keppel Corp to speed up the divestment of its non-core assets tracking the S$3 – 5bn target in three years. Keppel Corp has identified S$17.5bn of assets for monetisation, specifically S$3 – 5bn within three years. It has already divested S$1.2bn of assets, realising an estimated gain of S$120mn.
  • Following its recent P-78 floating production, storage and offloading vessel (FPSO) contract win from Petrobras, Keppel O&M’s net orderbook has doubled to S$6bn. This is scheduled for completion in late 2024. In the mid-to longer term, we see a successful divestment of its Rigco as a potential catalyst for Keppel Corp.

Maintain BUY with unchanged target price of S$6.12

  • We maintain our SOTP-based valuations at S$6.12 and BUY recommendation for Keppel Corp.
    • We value Keppel Corp's Offshore & Marine division at 0.6x book value, about a 16% discount to peers.
    • We value Keppel Corp's Property segment at a 40% discount to RNAV and Infrastructure division at 12x FY21e earnings, in-line with peers.
    • We value M1 at 12x FY21e earnings, at a slight discount to listed peers’ average of 13x.
    • Keppel Corp’s stake in Sino-Singapore Tianjin Eco-city is valued at 1.5x book value.
    • We also ascribe 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. Catalysts expected from contract wins and a successful divestment of its Rigco.
  • See
  • Risks to our view include
    1. a prolonged resolution for Rig co,
    2. a further weakening of oil prices and
    3. a worsening of economic uncertainties.





Terence Chua Phillip Securities Research | https://www.stocksbnb.com/ 2021-06-09
SGX Stock Analyst Report BUY MAINTAIN BUY 6.120 SAME 6.120



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