SINGAPORE (July 20): DBS Group Research continues to favour Keppel as a safer proxy to ride the O&M (Offshore & Marine) recovery, given its multi-pronged businesses. Reiterate “buy” with target price tweaked to $9.00 or 1.3 times FY18F book value.
Keppel’s 1H18 results were boosted by property en bloc sales and Nassim Woods revaluation gain. On top of 10 cents interim dividend, the company also declared a special dividend of 5 cents, which lifts full-year DPS projection to 27 cents.
Keppel’s huge historical land bank of 6.5 million sqm is also held at a low cost, says DBS, and half of the land bank is currently under development, progressively realising its RNAV over the next 3-5 years.
Of its remaining undeveloped land bank, 40% is for development projects in Tianjin Eco-city. The land was acquired in 2009 at less than one-tenth of the current land price and yet to be reflected in DBS’s RNAV. In addition, the ongoing portfolio rebalancing exercise will unlock values of completed projects.
The O&M division also looks to be on the cusp of recovery. O&M’s contract wins in 2017 bucked the declining trend as the division clinched $1.2 billion worth of new orders, which doubled over 2016. “The momentum should continue into 2018 with $3 billion new orders assumed,” says DBS.
Year to date, Keppel has won $890 million in new contracts. New orders are expected to come from gas and FPSO projects buoyed by sustained oil prices above US$70/bbl ($96/bbl). The recovery in new orders towards our assumption could prompt further re-rating of the O&M business.
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“Our target price of $9.00 is based on sum-of-parts valuation with O&M segment valued at 2.4 times book, infrastructure at 15 times FY18F earnings, property segment at 25% discount to RNAV, investment at 15 times FY18F earnings, and market values or estimated fair values for listed subsidiaries,” says DBS.
As at 2.23pm, shares in Keppel are trading at 14 cents higher at $7.10.
