Given the rising role of gas, Foo says this strategy provides Keppel with a highly scalable model to reap the benefits of higher FLNG vessel demand in the future.
According to Foo, the economics of FLNG conversion projects yield a payback period of as low as 5-7 years.
“Using the Hilli Episeyo project as an example, we estimate an equity IRR of 14% (assuming three-year construction time) and EBITDA yield of 14%,” says Foo.
See: Keppel to deliver world’s first Floating Liquefaction Vessel conversion
See also: UOBKH raises TP on SIA to $6.22, FY2026 earnings to see lift on fuel cost savings
The actual numbers could look even more compelling as the returns are based only on its initial eight-year contract while running at half its processing capacity, adds Foo.
Assuming Hilli Episeyo runs at full capacity, the equity IRR rises to an astounding +40% over its eight-year contract even though the vessel has an economic lifespan of 20 years.
The high yield and short payback period makes FLNGs highly suitable for packaging into a yield instrument, says Foo.
Keppel’s co-partner and client, Golar LNG, has already done this through the incorporation of Golar LNG Partners (GMLP).
Packaged as a Master Limited Partnership which is similar to Singapore’s business trust, GMLP currently provides a dividend yield of 11.2%.
UOB has a “hold” on the stock and recommends investors enter at $5.90 and exit at $6.55.
Shares in Keppel are trading 7 cents lower at $6.33.
