CFA Society Singapore
SINGAPORE (Nov 21): CGS-CIMB Securities is keeping Keppel Corp at “buy” despite Keppel FELS having entered into a settlement agreement with an unnamed oil and gas services company to terminate a $165 million contract for integration works done on a rig.
According to Keppel, the project was said to be 30% completed and Keppel FELS has been fully compensated.
In a recent report, CGS-CIMB analyst Lim Siew Khee suspects the newbuild involved could be SKD Kinabalu, the semi-tender rig belonging to Sapura Energy. In its FY14 earnings announcement, management mentioned it won two semis contract without revealing the customer’s name as the yard was bound by a confidentiality agreement.
“We estimate the contract to be $400 million. In 2017, industry sources had reported that the deliveries of the two said semi-tenders were deferred for delivery from 2017 to 2019, and then to 2020,” says Lim, adding that Keppel FELS was compensated for the delay.
To be sure, Sapura Energy saw weak average tender rig utilisation of 38% in 2QFY19.
“We also deduced that which is an older Frigstad T70 unit originally ordered from Kencana yard in 2011 but was delayed,” says Lim, “The unit was subsequently moved to Keppel FELS to be integrated/completed.”
As the termination will not result in any loss, CGS-CIMB is maintaining its EPS forecasts. As at Sept, Keppel’s O&M order book stood at $4.4 billion.
“We do not think the termination is a cue for further downturn in the offshore & marine market, but a customer-specific and niche asset issue. We still like Keppel and maintain our SOP target price of $8.38,” says Lim.
Year to date, shares in Keppel are down 18.3% to $6.15 or 11.4 times FY19F earnings.