See: Keppel unit bags $545 mil contract to build two LNG vessels in US
According to DBS, this sizeable contract win is an encouraging news as order flow has been slow for Keppel thus far this year.
“The new win will lift Keppel’s YTD wins to $850 million or 57% of our order assumption of $1.5 billion,” says DBS in a flash note.
In addition, the contract wins are significant on several fronts.
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Firstly, the contract is Keppel’s first newbuild contracts for Jones Act vessels in US which requires vessels carrying goods between US ports to be built in US.
Secondly, the contract win underscores the importance of Keppel’s global shipyard network.
Currently, DBS says there are about 160 US-built bulkers, tankers and gas carrier vessels in-service on order.
“As Keppel AmFELS’s yard is in US, Keppel is well-positioned to tap the replacement demand for the ageing Jones Act fleet,” adds Keppel.
Thirdly, the win underscores Keppel’s innovative, R&D capability and comprehensive offerings of LNG-related vessels.
Finally, the contracts are on milestone payment, which is a plus from working capital perspective.
DBS observes that the contract value for these LNG-fuelled containerships at US$200 million each is eight times the value of traditional heavy fuel oil-powered containerships of similar size -- 2,525 TEU -- that cost US$25 million each.
This is probably due to higher equipment cost and sophistication to construct LNG-fuelled vessels, higher construction cost in US, and higher specifications of the vessels.
Still, the contract value seems reasonable compared to the contract awarded last year by another Honolulu-based player, Matson, Inc. to build two larger combination container and roll-on/roll-off (Con-Ro) vessels -- 3,500 TEU -- at a contract price of US$511 million.
“We expect a learning curve to build this new product type. Prior experience in construction of LNG carriers and containership repairs could help. In addition, it is a relatively small vessel,” says DBS, “We continue to like Keppel as a proxy to ride on property and offshore & marine recovery.”
DBS is keeping its “buy” on Keppel and target price of $7.60.
As at 4.26pm, shares in Keppel are up 8 cents at $6.38 or 12.6 times earnings and 0.9 times price to book for FY17F. The stock offers an FY17F dividend yield of 3.2%.
