DMG & Partners Research, July 3
KEPPEL Corp announced that its conditional contract with Golar LNG for the conversion of a floating liquefaction vessel (FLNGV) is now firm. The contract value of U$735 million came as a surprise, and is 22 per cent above our S$750 million estimate.
This boosts Keppel's YTD order wins to S$3.15 billion, on track to hit our S$6.5 billion estimate. This contract comes with two options for the conversion of another two similar units, likely worth an additional S$1.8 billion. Last week, Golar successfully priced its follow-on offering of 110 million shares of common stock at US$54 per share, raising about US$6 billion to: i) fully fund initial milestone payments under a conditional agreement with Keppel, and ii) partly fund future scheduled payments.
With financing now in place, the lights turn green for converting two additional FLNGVs, the Gimi and the Gandria, which appear to be sister vessels to the Hilli.
According to the Douglas-Westwood World FLNG Market Forecast, the global floating liquefied natural gas (FLNG) industry is expected to attract over US$65 billion of investments through 2020. The Asia-Pacific has been singled out to draw the majority of investments in this sector, with its strong pipeline of regasification and liquefaction projects.
We continue to maintain our "buy" recommendation on Keppel with an S$12.50 target price based on the sum-of-parts model. We see Keppel's strong design capability yielding long-term competitive advantages. Key risks include a slowdown in global gas projects amid burgeoning cost pressures in both the floating and onshore LNG industry.
BUY
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