- Maintain HOLD with lower SOTP-based TP of SGD10.74 (from SGD10.95), with 4.5% yields.
- 3Q14 met expectations. Property the only weak spot. Fine-tuned FY14E-16E EPS.
- Deteriorating sector sentiment a risk to O&M orders.
3Q14 PATMI of SGD414.2m (-9.5% YoY, +2.0% QoQ) broadly met consensus and our expectations. 9M14 PATMI (-0.2% YoY) formed 74% and 72% of the respective FY14E forecasts. O&M operating margins inched up 0.3ppt QoQ to 15.0% (2Q14: 14.7%, 3Q13: 16.5%), on track for our 14.9% full-year forecast. Property PATMI receded 52% YoY on weaker Singapore and China sales.
Risks to order intake
Keppel has secured SGD3.7b of O&M orders YTD, lifting its backlog to SGD12.7b. It sees no material decline in order enquiries and expects a balanced mix of rig and non-rig orders. Still-healthy enquiries, plus seven outstanding options worth c.USD2.6b, should help it meet our below-consensus SGD5.5b order-win target for FY14E. That said, we see increasing risks as Ensco did not exercise its option for a jackup rig recently. We expect drillers to defer their rig orders in a deteriorating drilling market. Softening residential markets in Singapore and China are added concerns.
Still, Keppel’s strong execution and order backlog should help it ride out the volatility, with attractive yields of 4.5%. Maintain HOLD. Our SOTP-based TP dips to SGD10.74 from SGD10.95 with less than 1% changes to our FY14E-16E EPS.
To turn positive again, we need to see: 1) improving drilling-market dynamics; 2) higher O&M margins; and 3) an improved property outlook.
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