CGS-CIMB Research analyst Lim Siew Khee has kept “add” with an unchanged target price of $6.40 on Keppel Corporation following its US$2.3 billion ($3.05 billion) order win from Brazil’s National Oil Company, Petroleo Brasileiro S.A (Petrobras) on May 10.


See: Keppel O&M awarded US$2.3 bil contract to build FPSO for Petrobras


 

The contract is the biggest single contract secured for Keppel since 2012, bringing the total number of new orders secured to $3.8 billion year-to-date (y-t-d). The new contract has also brought the group’s order book to around $6 billion from the $3.3 billion as at end-2020.

“The contract win is a testament to Keppel Corp moving up the value chain without significant capex expansion as such sizeable structures were typically built by the Korean yards, given the latter’s capacity,” writes Lim in a May 10 report.

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The contract is structured based on milestone payment terms with 70% of the work scope attributable to Keppel Corp. Construction is expected to start in 1QFY2022, starting mostly in Korea, China and Brazil.


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While Lim expects Keppel Offshore & Marine (Keppel O&M) to see a loss of $55 million in the FY2021, she expects mid- to high-single digit EBIT margin for this project, and some contribution from the 2HFY2022, which could potentially turn Keppel O&M into profitability in the 2HFY2022.

“With this much-anticipated contract in the bag, the upcoming catalysts include divestment/charting of stranded rigs, re-contract of halted Sete Brasil semi-subs and announcement of new growth initiatives. Medium-term catalyst: divestment of O&M,” she writes.

As at 3.19pm, shares in Keppel Corp are trading 16 cents lower or 3.04% down at $5.10, or 0.87 times P/B, according to CGS-CIMB's estimates.