SINGAPORE (Apr 23): CGS-CIMB has maintained Keppel Corporation (Keppel Corp)’s “buy” rating at a lower target price of $7.48 from $7.76 previously.

The rating comes after Wednesday’s news that the Keppel-led consortium received a letter of acceptance (LOA) from the National Environment Agency (NEA) for an engineering, procurement, and construction (EPC) contract worth approximately $1.5 billion.

The contract, which will oversee the development of a Waste-to-Energy (WTE) and a Materials Recovery Facility (MRF) for Singapore’s new Tuas Nexus Integrated Waste Management Facility, is slated to be completed in 2024. A total profit of $36 million is estimated for this project.

Keppel Corp’s infrastructure division, which also oversees the operations of two other Waste Management Facilities in Hong Kong and Qatar, has consistently contributed close to $170 million of profit per annum in FY2018 to FY2019 to the group’s books.

These has led the brokerage to view Keppel Corp’s infrastructure division as a “driver” during this downturn with its portfolio of “essential assets” that include power plants, data centres, and waste management services.

Adding to the good news, is Keppel Corp’s Sino-Singapore Tianjin Eco City’s first land sale in 2020 for RMB1.17 billion (S$236.6 million). The sale could be “an indication of pent-up demand for residential properties post Covid-19 in China”, says CGS-CIMB analyst Lim Siew Khee.

CGS-CIMB estimates that the sale will bring Keppel Corp “a profit of close to $30 million”.

Looking ahead, the brokerage expects “weaker profits” from Keppel Corp’s offshore and marine division, and property arm due to lesser wins and later completion dates for projects due to Covid-19.

“The key catalyst/downside risk is the partial offer of Temasek at $7.35 before 21 Oct 2020. We see the deal as critical to restructuring the Keppel Corp and Sembcorp group in the looming recessionary environment. We believe the shock in oil price drop during the offer review period (Sep 19- Oct 20) may not be construed as adverse material change (AMC),” Lim adds.

Before the release of Keppel Corp’s 1Q2020 results on April 29, the brokerage estimates a net profit of $150 million, down 21% to 26% y-o-y.

As at 4.05pm, shares in Keppel Corp fell 8 cents, or 1.4% at $5.62.