CFA Society Singapore
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.