In a report on Monday, analyst Lim Siew Khee says she believes a stronger balance sheet from Keppel O&M and its property division could result in a special FY18F DPS of 8-10 cents, or a dividend yield payout of about 4.2%, which is higher than peers.
The analyst has raised FY18-20F EPS estimates on higher gains in property, with property ROE possibly reaching 12% for FY18F after factoring potential revaluation gains.
“We think Keppel Urban Solutions (KUS) could enjoy the same success as Sino-Singapore Tianjin Eco-City (SSTEC), but on a smaller scale, with a faster turnaround time and focused on smart precincts,” says Lim.
“O&M outlook is positive on sustained high oil price but we do not anticipate V-shape recovery. Operating leverage to improve on leaner operations and lower interest,” she adds.
In particular, the analyst is expecting Keppel’s receipt of a US$288 million down payment from its client Borr Drilling, from a recent sale of five jack-up rigs, to improve the group’s balance sheet and operating leverage.
CGS-CIMB is forecasting for the group's FY18F order wins to hit $3 billion.
“Keppel is our preferred pick in the capital goods sector given its clear earnings growth strategies. Catalysts include stronger-than-expected turnaround in Keppel O&M, divestment gains from asset recycling in property and higher DPS. Key risks include significantly weaker-than-expected orders at Keppel O&M and an unfavourable outcome on the court claim by EIG,” concludes Lim.
As at 11.19am, shares in Keppel Corp are trading 7 cents higher at $8.26.
