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Keppel Corp - Standing Strong Amongst Sea of Red
28 Jan 10

Macquarie is pleased to list the following new warrant over Keppel Corp today:

Call KepCorp MBLeCW100702 (KE9W) exercise price $8.20.*


The world’s largest oil-rig builder – Keppel Corp – recently reported a 4Q09 profit of $343mn on Tuesday. The figure came 10% above Macquarie Research Equities’ (MRE) forecast and 21% above consensus. The company also declared a 23 cent final dividend plus a 23 cent special dividend in specie of K-Green Trust (KGT) units. Climbing 0.9% yesterday, Keppel Corp was the top index outperformer on the benchmark index which was down 1.2%.

In news, the company announced on the SGX after market yesterday that its Keppel FELS unit has secured a contract from Saudi Aramco to build a customised jack-up rig…

Below are some excerpts from a MRE report on Tuesday commenting on Keppel Corp’s 4Q09 results:


2009 net profit above expectations.Net profit rose 48% to S$1.6bn. Excluding exceptionals, net profit rose 15% to S$1.3bn. The exceptionals included the sale of Singapore Petroleum Company, offset by impairment of non-performing assets (including goodwill) and investment properties. The offshore & marine division net profit rose 15% to S$810mn, due to strong momentum from past orders. Infrastructure net profit rose 100% to S$126mn, due to better performance from Keppel Integrated Engineering and Keppel Energy. Property rose 34% to S$210mn, mainly reflecting better pricing and unit sales. Investments contracted 31% to S$119mn as SPC was sold in 2Q09.


O&M order book declined to 0.67x 2009 revenue, company warns on orders. As at Dec 2009, the order book stood at S$5.6bn. If we include the P-61, it would increase to S$6.4bn, or 0.77 years of revenue. Either way, the risk of revenue shortfall remains high. The company statement said, "while it is unlikely that we will see a return to the high volume of newbuild rig orders of the last four to five years, there continues to be a healthy level of enquiries for our products and solutions."


2Q10 could turn out to be an exciting period. The Petrobras 9 rig bids will close in 2Q10, and given Petrobras' aggressive capex programme, MRE believes it will need to award the orders soon. In addition, there are already enquiries from rig owners for the remaining 19 rigs.


23 cent special dividend in specie. Keppel will distribute 50.5% of KGT, which will have, for a start, the Senoko WTE plant, the Ulu Pandan NEWater plant and the Keppel Seghers Tuas WTE plant. Each shareholder will receive 1 KGT share at S$1.16/unit for every 5 Keppel shares held. These three assets are in total worth about S$750mn. There will be tax benefits in setting up this company as a business trust, and we reckon the yield will be comparable or slightly lower to other business trusts, which are currently yielding 7%.


Neutral maintained
MRE has a Neutral rating on Keppel Corp and a 12-month target price of S$7.50 based on RNAV.

 

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