Tuesday, 22 April 2014

Keppel Corp

Kim Eng on 16 Apr 2014

  • 1Q14 results within expectations, with a 5.1% YoY dip in PATMI to SGD338.7m due mainly to one-offs a year ago.
  • O&M operating margin held steady both QoQ and YoY at 14.2%. Net orderbook stands at a record SGD14.4b with SGD1.9b worth of new orders secured in the first quarter.
  • Maintain BUY and SOTP-based TP of SGD12.48.
What’s New
Keppel Corp’s 1Q14 PATMI of SGD338.7m (-5.1% YoY, +2.1% QoQ) came in largely within our expectations, meeting 21% of our full-year estimate. The O&M segment remains the largest net profit contributor at 78%, posting an 11% YoY growth. All other segments, however, marked a decline, albeit due to one-offs a year ago. O&M operating margin held firm at 14.2% (1Q13: 14.1%, 4Q13: 14.2%).

What’s Our View
We see efficiency gains driving O&M operating margin expansion this year and keep our FY14E margin forecast of 14.9% intact. On new contract wins, management remains optimistic and we expect it will meet our full-year projection of SGD6.2b. Keppel has already secured SGD1.9b of new orders in 1Q14, achieving 31% of our full-year forecast. Its net orderbook is also at a new record high of SGD14.4b, with deliveries extending through to 2019.
In our view, the contract win environment would remain robust as a strong replacement cycle would continue to sustain the jackup rig market. Moreover, weakness in the deepwater floaters market is but temporary as the long-term demand dynamics are strong, while the FPSO market is another area of growth opportunity.
Keppel’s proactive approach to developing its “Near Market, Near Customer” strategy via inroads into Mexico and China, as well as product innovations, should help it stay ahead of competition in the offshore space. We keep our estimates and SOTP-based TP of SGD12.48 unchanged. Reiterate BUY.

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