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Analysts mixed on Keppel after Temasek withdraws partial offer

Jeffrey Tan
Jeffrey Tan • 2 min read
Analysts mixed on Keppel after Temasek withdraws partial offer
DBS Group Research has turned less optimistic on Keppel Corp following Temasek Holdings’ withdrawal of its partial offer of a 30.55% stake in the conglomerate.
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Analysts are divided on Keppel Corp following Temasek Holdings’ withdrawal of its partial offer of a 30.55% stake in the conglomerate.

On one hand, DBS Group Research has downgraded Keppel to a “hold” rating from “buy” and reduced its target to $5.50 from $6.40 previously.

On the other hand, CGS-CIMB Research has maintained its “add” recommendation with an unchanged target price of $6.46.

On Aug 10, Temasek invoked the material adverse changer (MAC) pre-condition, and thus, will not proceed with its partial offer for Keppel.

This was in response to Keppel’s net loss of $699 million in 2Q FY20, which was considered a breach of one of the MAC pre-conditions.

“While we remain sanguine on Keppel’s longer-term prospects, near term upside could be capped by operational headwinds,” DBS analyst Ho Pei Hwa writes in a note dated Aug 11.

See also: Brokers' Digest: Prime US REIT, Hongkong Land, Yangzijiang Shipbuilding, SIA, CICT, ST Engineering, OUE REIT, Wilmar

“Temasek’s withdrawal of the partial offer removes an imminent catalyst,” she adds.

However, CGS-CIMB foresees a 2H FY20 earnings recovery and stronger gains from asset recycling as catalysts ahead.

“Add only after the share price shock subsides,” CGS-CIMB head of research Lim Siew Khee writes in an Aug 10 report.

See also: Analysts weigh in on Singtel after restructuring of Intouch Holdings

According to DBS, Keppel is trading at 0.9 times book value, which is about one standard deviation below its mean average trading price.

It notes that a further rerating requires more evidence of a macro turnaround and return on equity enhancement towards the group’s target of 15%.

As at 2.44pm, Keppel slid 59 cents or 10.9% at $4.81 with 25.7 million shares changed hands.

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