- 2Q14 results met expectations. O&M operating margin rose by 0.5ppt to 14.7%, on track to meet our full-year forecast.
- An oversupplied deepwater rig market and reduced capex by oil companies could cap share price upside.
- Maintain HOLD with revised SOTP-based TP of SGD10.95.
Keppel Corp’s 2Q14 PATMI of SGD406m (+17% YoY, +20% QoQ) was within our and consensus expectations. 1H14 PATMI meets 45% of our full-year forecast. O&M operating margin for the quarter inched up by 0.5ppt QoQ to 14.7% (1Q14: 14.2%, 2Q13: 14.1%), on track to meet our 14.9% full-year forecast. An interim dividend of 12 SGD cts/sh was declared.
Near-term headwinds to cap share price upside
The SGD3.2b of O&M orders secured YTD account for 58% of our full-year order win forecast of SGD5.5b. Net orderbook stands at SGD14.1b with deliveries up until 2019. In the property division,
1H14 revenue dipped by 13% YoY on weaker sales in Singapore and China, as well as the deconsolidation of Keppel REIT in Aug 2013.No further provisions were made for its infrastructure EPC projects in Qatar and UK which are at the final stages of completion.Keppel remains bullish on the jackup rig market, but acknowledgesweakness in the deepwater rig segment. In our view, an oversupplied deepwater rig market and the spectre of further reductions in capex by oil companies would dampen drillers’ propensity to order new rigs in the next six months.
Maintain HOLD with a minor 1% cut to FY14E PATMI, while FY15E-16E forecasts are left unchanged. Our SOTP-based TP is revised toSGD10.95 (from SGD10.74) after incorporating market prices of itslisted entities. Rerating catalysts would come from (1) improved market sentiments as supply-demand for deepwater rigs balances out, (2) stronger-than-expected orders from other offshore vessel types (FPSO/FLNG) and (3) higher-than-expected O&M margin.
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