Keppel Corp

Kim Eng on 13 Apr 2012

US$4.12b contract almost in hand. Keppel Corp has signed a Letter of Intent (LOI) with Sete Brasil to design and construct five additional semisub drilling rigs based on its proprietary DSSTM 38E design. The construction of these rigs would be done at Keppel’s BrasFELS yard in Brazil. When completed, the rigs would be deployed to support Petrobras in its offshore oil and gas exploration activities in the Santos Basin oil fields. The contracts are valued at approximately US$4.12b and deliveries should be from 4Q15 and beyond.

Not a surprise. The contract win should not come as a surprise as the market has widely anticipated that Keppel would eventually secure this package of 5 semisubs. Earlier in Dec 2011, Keppel had already secured a contract for one semisub, based on the same design from Sete Brasil, at a price of US$809m. The signing of the LOI suggests that the deal is most likely sealed.

A record year of contract wins. Assuming that the contracts are in the bag, FY12 could be a record year of order wins for Keppel’s Offshore & Marine (O&M) segment, above the US$7.8b record order it secured in
FY11. In addition to the Petrobras-related order, we are expecting US$6b in order wins for FY12, given the strong global demand for offshore rigs. With this latest development, Keppel order wins in FY12 could well exceed US$10b with deliveries stretching up to 2016. We estimate that the current net orderbook would swell to US$11.8b with the addition of the Petrobras-related contracts.

Reiterate Buy with target price raised to $13.20. We reiterate our Buy recommendation with target price raised to $13.20 as we incorporate the new contracts into our forecasts. We also revise our SOTP valuation methodology following a transfer of coverage. The O&M segment is now valued based on DCF-methodology to capture the value from this massive contract win with revenue recognitions stretching beyond 2015.