SINGAPORE (Aug 29): RHB Research is upbeat on Keppel Corporation as the conglomerate stands poised to punch out of the corner with a one-two combination on its offshore and marine (O&M) and property fronts.
“We maintain our positive view on Keppel as all of its segments are firing,” says RHB’s Singapore research team in a Tuesday report.
Keppel Corp last week announced that Keppel AmFELS, a US-based subsidiary of its O&M arm, has won a contract worth more than US$400 million ($545 million) for the construction of two Liquefied Natural Gas (LNG) fuelled containerships.
RHB estimates that this brings Keppel’s current O&M orderbook to close to $3.9 billion. Year-to-date, the group has bagged some $900 million worth of new contracts for the segment – closing in fast on RHB’s orderbook replenishment expectation of $1 billion in 2017.
See: Keppel unit bags $545 mil contract to build two LNG vessels in US
Meanwhile, the consortium comprising Keppel Corp, Golar LNG, and Black & Veatch is also expected to pare down its equity stake in Hilli Episeyo FLNG for US$178-190 million.
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According to RHB, Keppel will halve its stake in FLNG’s common units to 5% post divestment, while keeping its Series A and B Units – which entitles Keppel to a portion of the cash flows generated from the facility – at 10%.
“Although O&M contributions remain relatively sluggish, we believe Keppel’s strategy to focus on non-drilling and specialised projects is the right move, as evidenced by its contract wins year-to-date,” says RHB.
On the property front, Keppel is expected to complete the divestment of its 100% stake in its Nantong, China residential project, Waterfront Residences, for close to $292 million by end-3Q17.
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This total consideration is more than 30% higher than Waterfront Residences’ unaudited net asset value of about $220 million, as at July 2017.
However, RHB says it is keeping its earnings forecasts for Keppel as property earnings are likely to continue to be lumpy, mainly coming from its land and project sales in China.
As such, the research house is keeping its “buy” call on Keppel with an unchanged target price of $7.34.
Keppel in the 2Q ended June posted a 22.1% decline in earnings to $160.3 million on the back of lower revenue from its O&M division.
See: Keppel Corp 2Q earnings sink 22% to $160.3 mil on lower offshore & marine contributions
The stock is forecast to trade at a recurring P/E of 13.3x and a P/B of 0.96x in FY17F.
Dividend yield is expected to rise to 5.8% in FY17F, from 5.4% over the past two years.
As at 11.38am, shares in Keppel Corp are trading 4 cents lower at $6.35.
