CIMB Research, July 3
KEPPEL has secured a KFELS B-class jack-up rig order from PV Drilling Overseas priced at US$210 million and due for delivery in Q1 2015.
The price is at a 2 per cent premium (US$5 million) to the B-class rigs secured from Grupo R in March, to factor in the tighter delivery schedule of Q1 2015. Grupo R's rigs are due for delivery in Q2-Q4 2015, in our view.
We think that Keppel is selective in its contracts, reserving yard slots for higher margin/value jobs.
We believe that the current rig will yield an Ebit margin of 15-18 per cent for the repeated design as it is the 19th KFELS B-Class rig on Keppel's order book. Since 2000, 45 such rigs have been delivered.
The current rig is priced slightly higher than Sembcorp Marine's recent jack-up rigs from Oreo Negro Mexico at US$208.5 million each, with a later delivery scheduled.
The semi-sub contract that Keppel secured from Socar in June was priced at a 6 per cent premium over the semi-sub that Diamond Offshore awarded Hyundai Heavy Industries, and at 25 per cent above the two semi-subs that Naftogazz Ukraine awarded Keppel in March.
Keppel has not lost any customers despite the unbeatable financing offered by the Chinese yards. In fact, it continues to gather strong order momentum, especially in jack-up rigs, which dominated about 90 per cent of its 2013 order wins.
Investors should buy into Keppel on recent weakness. We expect strong margins from the peak delivery of rigs in 2013, to drive its share price. Keppel is our top pick (target price: S$11.90) in the big-cap O&M segment at for its quality, lower execution risk and better margins.
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