SINGAPORE (Sept 5): Daiwa Capital Markets is maintaining its “hold” recommendation for Keppel Corporation as the group embarks on a multi-business strategy to tide over the oil & gas downturn.

Designed to harness the resources and capabilities of different entities within the group, Keppel launched the Alpha Data Centre Fund (ADCF) to enable Keppel Telecommunications & Transport (KPTT) to develop more than one data centre a year.

Through the fund, KPTT, Keppel Land, Keppel Capital and Keppel Infrastructure Trust will collectively pool their know-how in the development of data centre projects, leverage through third party capital, and eventually monetise the assets through Keppel DC REIT after the data centre is operationally stable.

Meanwhile, investors’ focus now lies on Keppel’s property business, which contributed 46% to Keppel’s earnings for 2QFY16.

“Management believes Keppel has an advantage over other pure-play property firms as exemplified by the ADCF illustration, with different divisions’ expertise being assimilated to ensure a higher probability of project success,” writes Daiwa’s Royston Tan in a report on Friday.

Although the brokerage remains “optimistic” about Keppel’s diversified business model bolstering the group’s results during the downturn, Tan noted that margins from Keppel’s property division would start to decline as its tier-1 residential inventory continues to be depleted.

The group is also likely to make impairment on its investment in KrisEnergy, which had a carrying value of $490 million at end-2015 in its book, compared with its current market value of $54 million based on Keppel’s 40% ownership interest.

As such, Daiwa has lowered its earnings per share forecast for FY16 to FY18 by 3-8%, resulting from the lower new order win assumptions from the offshore and marine segment, and lower contributions from property and associates.

Shares of Keppel are trading at $5.26. Daiwa has a target price of $5.39 compared to $5.61 previously.