SINGAPORE (Jan 22): OCBC Investment Research is keeping Keppel Corporation on “buy” on the back of potential cash inflows which are likely to offset the hefty US$422 million ($570 million) fine for its involvement in a corrupt payments scandal in Brazil.
See: Keppel O&M fined US$422 mil as part of resolution over bribes for contracts by ex-agent Skornicki
Keppel is expected to book its provision for the fine in its upcoming FY17 results on Jan 25, which will see conglomerate report a net loss for 4Q17.
“Should there be potential price weakness following the 4Q results, longer-term investors may consider accumulating on dips,” says OCBC lead analyst Low Pei Han in a Monday report.
Low’s positive stance on Keppel stems from expected asset disposals such as its RMB 2.9 billion ($597.4 million) divestment of Keppel China Marina, and other asset recycling initiatives in the real estate segment.
See: Keppel Land China sells stake in Keppel Cove in Zhongshan for $597.4 mil
See also: Maybank upgrades MINT to 'buy' with higher TP of $2.60 after Tokyo facility acquisition
Keppel on Jan 19 also confirmed that it is in ongoing talks in relation to the possible sale of jack-up rigs to Borr Drilling.
While Keppel says that the details and terms of any agreement relating to such sale and purchase have not yet been finalised and are still subject to ongoing negotiations and discussions, local media earlier reported that Keppel Offshore & Marine is looking to offload six jack-up rigs for up to US$960 million.
See also: Brokers’ Digest: Manulife US REIT, Pacific Radiance, Zixin Group, CLAS, Sheng Siong Group
See: Keppel says no agreement yet on sale of jack-up rigs to Borr Drilling
In addition, Low notes that Keppel owns 36% of K1 Ventures, which has proposed for a voluntary liquidation.
If approved, Low says Keppel could receive its share of K1’s distribution of excess cash, totalling some $315 million to be divided.
Meanwhile, OCBC is increasing its price-to-book value forecasts for Keppel’s property segment on the back of improving valuations in Singapore and Hong Kong, as well as increasing its forecasts for the offshore and marine segment due to recovering oil prices.
As such, the brokerage is raising its fair value estimate for Keppel to $9.32.
As at 1.14pm, shares of Keppel Corp are trading 1 cent higher at $8.26, implying an estimated price-to-earnings ratio of 17.6 times and a dividend yield of 2.4% in FY18.
