Keppel Corp

CIMB on 10 Jul 2012

KEPPEL'S US$115 million investment (20 per cent stake) in South-east Asia upstream oil & gas company KrisEnergy could be a precursor of a potential IPO.

KrisEnergy was set up by the founders of former SGX-listed Pearl Energy which was sold to Abu Dhabi-listed Aabar Petroleum in 2006.

We do not expect material earnings per share (EPS) contribution from the deal for now.

Apart from the IPO potential, we think Keppel could also tap KrisEnergy's development field to supply offshore equipment.

Maintain "outperform" and target price based on revised net asset value (RNAV) with stronger offshore order momentum and margins as key catalysts.

Keppel via its investment division has subscribed for 20 million shares, or a 20 per cent stake in KrisEnergy, for US$115 million. Armed with a war-chest of US$500 million, KrisEnergy was established in 2009 by Pearl Energy founders Keith Cameron, Chris Gibson-Robinson and Richard Lorentz, together with a US-based private equity firm, First Reserve Corporation.

KrisEnergy's portfolio of three offshore producing fields - B8/32, B9A in the Gulf of Thailand and Glagah-Kambuna TAC in Indonesia, which has a combined production average of 4,800 boepd in 2011 (2012 forecast: Net production of 3,447 boepd).

We are positive on the acquisition, although EPS contribution will not materialise soon.

KrisEnergy made a loss of US$36 million for FY11 and a profit of US$1.5 million for Q1 2012.

Losses could continue for FY12 with higher drilling costs.

The acquisition price represents 1.5 times P/NTA.

It is one of Keppel's largest M&A in recent years following its 28 per cent stake (S$87.5 million) in Dynamac in 2011.

Judging from Pearl Energy's success by the same group of founders, we are more interested in a potential IPO for KrisEnergy.

There are also prospective alliances between KrisEnergy and Keppel's O&M division for the supply of offshore equipment.

Stay invested in Keppel. It is trading at its five-year mean. The rebound in oil prices, stronger O&M order momentum and margins could be a catalyst for its share price.

OUTPERFORM