SINGAPORE (Oct 24): Credit Suisse and Macquarie Research have rated Keppel Corporation “underperform” and “neutral” with target prices of $5.00 and $5.80 respectively as weak contribution from its offshore and marine business continues to be a drag on the 3Q earnings for the conglomerate.

Macquarie lead analyst Conrad Werner notes that O&M does not appear to have any sign of uplift as operating profit fell 72% to $49 million or 55% below forecasts. While headcount and salaries have been slashed, and yards may have to be mothballed to cut costs, Werner says these actions show the dire outlook of the industry and urges investors to be cautious.

In the property segment, Credit Suisse lead analyst Gerald Wong notes that the segment has been boosted by divestment gains. While property sales for Keppel Land remains flat in Singapore, sales in China and Vietnam remain strong. Keppel Capital has also received approval from the Monetary Authority of Singapore to centralise certain regulated activities, allowing it to start investing in real assets, Wong notes.

Macquarie’s Werner expects that earnings for the property segment will be bolstered in the coming quarters as projects are completed and recognised. As for infrastructure, Werner notes that earnings were better than expected, but unlikely to recur. Commencement and ramping up of asset operations such as data centres and sewage treatment plants in Doha were the main contributors to the improved earnings.

“Without further granularity, we believe the divestments of some asset-management businesses into Keppel Capital during the quarter contributed to the figure, which we do not see going forward,” says Werner.

Werner also sees headwinds persisting in the O&M segment in the near-term, which coupled with the overhang from the corruption investigation, has led him to reiterate his “neutral” rating.

Shares of Keppel traded lower 1 cent lower at $5.33.