CGS-CIMB Research analyst Lim Siew Khee is keeping her “add” call on Keppel Corporation after the group, together with Sembcorp Marine (SembMarine), announced that they will require more time to finalise a “definitive agreement” for the proposed merger of Keppel Offshore & Marine (Keppel O&M) and SembMarine.
Lim has also kept her target price unchanged at $7.20.
The new date has been set as April 30 instead of March 31 as previously stated.
Despite the delay, both Keppel Corporation and SembMarine have stated that they have made progress in the proposed merger.
In her report dated March 31, Lim has also covered the divestment of Keppel Logistics for $80 million, in which Keppel Corp will recognise a small loss.
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“Earnings contribution from Keppel Logistics is immaterial to Keppel’s earnings per share (EPS), and the divestment is part of Keppel Corp’s Vision 2030 plans to be more focused,” she says.
Catalysts to Keppel Corp’s share price is a faster-than-expected projected pace of recycling, says Lim. The proposed merger with SembMarine at “favourable terms” is also another upside to the counter.
However, downside risks include a slower-than-expected macro outlook, as well as the unfavourable outcome of the merger with SembMarine.
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Further to her report, Lim is upbeat on Keppel’s proposal to increase its share buyback limit to 5% from 2% in its upcoming annual general meeting (AGM) on April 22.
On Jan 27, Keppel announced a committed share buyback of $500 million or up to 2% of its issued shares.
The way Lim sees it, the increase is a reflection of Keppel’s commitment and management’s response to the discount valuations.
Citi Research analyst Brandon Lee is also retaining his “buy” call on Keppel Corp with a target price of $6.35.
“Our $6.35 per share target price for Keppel Corp is derived by taking a 10% conglomerate discount to [its] aggregate net asset value (NAV),” Lee writes in his March 31 report.
“Our target price is based on a sum of the parts (SOTP) methodology, which values the offshore & marine (O&M) division at 8x FY2022 P/E (as FY22E marks a return to a meaningful recovery, in our view), [and] the property division at 0.8x FY2021 P/B (in line with large-cap Singapore-listed developers). We value the infrastructure division on a 13x FY2021 P/E, benchmarked against Asean peers,” he adds.
Following Keppel’s proposed divestment of Keppel Logistics, Lee estimates that the group should be on track to meet its target of $5 billion by the end of FY2023.
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Since October 2020 to date, the analyst estimates that the group has monetised some $3.1 billion of non-core assets, including that of Keppel Logistics.
Shares in Keppel Corp closed 4 cents higher or 0.62% up at $6.46 on April 1.
