Keppel to see stronger 1Q earnings on property trading and divestment, says CGS-CIMB

Keppel to see stronger 1Q earnings on property trading and divestment, says CGS-CIMB

By: 
PC Lee
17/04/19, 12:54 pm

SINGAPORE (Apr 17): Keppel Corp is announcing its 1Q19 results on Thursday, after market close.

CGS-CIMB Research expects Keppel to achieve net profit of $230 million largely be driven by property trading and divestment of interests in the Dong Nai project in Vietnam.

The research house says the restructuring of Keppel’s various businesses are slowly falling into place with the completion of M1’s acquisition; the privatisation of Keppel T&T (KTT) and with the long-awaited delivery of Sete Brasil semi-subs.

“In the short term, Lim expects Keppel’s share price to be sustained by stronger q-o-q 1Q19  earnings, driven by profitability in Offshore & Marine and divestment gains,” says lead analyst Lim Siew Khee in a recent report.

CGS-CIMB is maintaining its “add” and target price of $8.41, based on SOP valuations. Stronger than expected O&M recovery could be a key catalyst for the stock.

Lim says the completion of the M1 acquisition and privatisation of Keppel T&T (KTT) should enable Keppel to begin executing its transformation plans even though Keppel’s net gearing could go up from 0.4x in FY18 to 0.6x in FY19.

But before M1 can see a major transformation, she says cost optimisation and cross-selling for the telco should be its near-term priority.

Consolidation of M1 should contribute $6-7 million in 1Q19 but looking further ahead, Lim forecasts M1 to contribute $67 million in FY19F and $58 million in FY20F to Keppel, based on effective ownership of 84% via Konnectivity and 100%-owned KTT.

Meanwhile, privatisation of KTT should expedite asset injection of 100% SGP 4 into Keppel DC REIT.

“We think this could take place in 2H19 with stronger y-o-y occupancy and stabilisation of assets,” says Lim, “Our REIT analyst estimates SGP 4 to be valued at $420 million with KTT owning 40%...”

As for Keppel O&M, Lim says the semi-subs option exercised by Awilco at US$425 million ($575 million) in March shows there is potential for more orders of floaters in its $2.5 billion order wins assumption for 2019.

Near-term catalyst could be the long-awaited delivery of two semi-subs from Sete Brasil, either to Borr Drilling or Magni Partners or to Keppel which could keep to generate recurring chartering income.

Without provisions seen in 4Q18, the research house expects Keppel O&M to deliver net profit of $5 million with EBIT margin of 4% from the Awilco semi-subs.

As at 12.46pm, Keppel is trading at $6.78 or 7.8x FY19F -- below its 10-year average of 12x -- with P/BV of 1.04.

US sanctions on Huawei could backfire

SINGAPORE (May 27): It was only to have been expected. After nearly a year of pressure that failed to stop Huawei Technologies Co’s expansion -- especially in the rollout of the next generation 5G wireless network globally -- in its tracks, US President Donald Trump signed an executive order effectively barring American firms from doing business with the Chinese telecommunications equipment company. The inclusion of Huawei on the US Department of Commerce’s Bureau of Industry and Security’s (BIS) Entity List means that companies would need to apply for a waiver to supply goods with 25....
Read More >>

Annica chairman Ong quits just as $33 mil goes missing at his law firm JLC

SINGAPORE (May 27): Jeffrey Ong, managing partner of law firm JLC Advisors, may have given instructions to pay out a sum of $33.2 million held in escrow by his firm for a client, Allied Technologies. According to Allied’s statement filed with Singapore Exchange on May 23, the payment may have been “unauthorised”, citing a letter it received from JLC on May 22. Allied’s statement did not specify who the payment was made to. Ong also abruptly resigned as non-executive chairman of Annica Holdings on May 20. In a May 22 filing with SGX, Annica CEO Sandra Liz Hon Ai Ling said Ong resigne....
Read More >>

SGX RegCo sees targeted approach in enforcement, more powerful market discipline

SINGAPORE (May 27): Tan Boon Gin, CEO of stock exchange regulator Singapore Exchange Regulation, says the market can expect a stronger regulatory presence. “You will see a series of enforcement cases coming up quite soon,” he tells The Edge Singapore. Tan’s assertion comes amid significant changes in the market as sentiment remains lacklustre and investors’ expectations change. The local stock market has gone through significant upheaval, not least because of the penny stock crash in 2013 that wiped out some $8 billion in value from the market. The event dented investor sentiment, a....
Read More >>