Keppel Corp (KEP) reported an 8.1% YoY rise in revenue to S$3.18b but saw a 9.5% decrease in net profit to S$414.2m in 3Q14, such that 9M14 net profit met 76% of our full year estimates, in line with expectations. Operating margin in the O&M division remained healthy in the quarter, at 14.9% in 3Q14 vs. 14.7% in 2Q14. The semi-submersibles for Sete Brasil are also on track. Though there have been jitters in the oil market recently, management believes that this has not altered the sound fundamentals of the industry. Still, KEP’s order flow YTD has been relatively slow, and we have lowered our new order win estimates to S$5.7b for FY14 and S$6b for FY15, compared to S$6.7b and S$6.5b earlier. Our fair value estimate correspondingly drops to S$11.75 (prev. S$12.31), but given the potential upside and forecasted dividend yield of ~4.8% on the stock, we maintain our BUY rating on KEP.
3Q14 results in line
Keppel Corp (KEP) reported an 8.1% YoY rise in revenue to S$3.18b but saw a 9.5% decrease in net profit to S$414.2m in 3Q14, such that 9M14 net profit met 76% of our full year estimates, in line with expectations. The offshore & marine division remained the largest contributor to group net profit at 65% in 9M14, followed by property at 19%, infrastructure at 9% and investments at 7%.
Smooth execution in O&M
Operating margin in the O&M division remained healthy in the quarter, at 14.9% in 3Q14 vs. 14.7% in 2Q14. The semi-submersibles for Sete Brasil are also on track, with the first unit over 75% completed, the second over 40% completed, and the third unit almost 20% completed. With regards to the second Golar FLNG unit, KEP hopes to convert the LOI into a firm contract by the end of this year. Meanwhile, net order book for the O&M division stood at S$12.7b as at end 3Q14.
Unfazed by oil market jitters
Though there have been jitters in the oil market recently, management believes that this has not altered the sound fundamentals of the industry. With regards to capex cuts by international oil companies, KEP believes that they are just “kicking the can down the road” and will at some point need to spend to replenish reserves, while drilling contractors have to replace their fleet with new, safer and technologically superior rigs. In the mean time, national oil companies are expected to continue to raise their capex, such as PEMEX which plans to boost its annual E&P investment from US$19b in 2011 to US$30b in 2016.
4.8% dividend yield on a quality stock
KEP has secured orders of about S$3.7b YTD, and order flow has been slower than ours and the street’s expectations. As such, we lower our new order win estimates to S$5.7b for FY14 and S$6b for FY15, compared to S$6.7b and S$6.5b earlier. Our fair value estimate correspondingly drops to S$11.75 (prev. S$12.31), but given the potential upside and forecasted dividend yield of ~4.8% on the stock, we maintain our BUY rating on KEP.
Keppel Corp (KEP) reported an 8.1% YoY rise in revenue to S$3.18b but saw a 9.5% decrease in net profit to S$414.2m in 3Q14, such that 9M14 net profit met 76% of our full year estimates, in line with expectations. The offshore & marine division remained the largest contributor to group net profit at 65% in 9M14, followed by property at 19%, infrastructure at 9% and investments at 7%.
Smooth execution in O&M
Operating margin in the O&M division remained healthy in the quarter, at 14.9% in 3Q14 vs. 14.7% in 2Q14. The semi-submersibles for Sete Brasil are also on track, with the first unit over 75% completed, the second over 40% completed, and the third unit almost 20% completed. With regards to the second Golar FLNG unit, KEP hopes to convert the LOI into a firm contract by the end of this year. Meanwhile, net order book for the O&M division stood at S$12.7b as at end 3Q14.
Unfazed by oil market jitters
Though there have been jitters in the oil market recently, management believes that this has not altered the sound fundamentals of the industry. With regards to capex cuts by international oil companies, KEP believes that they are just “kicking the can down the road” and will at some point need to spend to replenish reserves, while drilling contractors have to replace their fleet with new, safer and technologically superior rigs. In the mean time, national oil companies are expected to continue to raise their capex, such as PEMEX which plans to boost its annual E&P investment from US$19b in 2011 to US$30b in 2016.
4.8% dividend yield on a quality stock
KEP has secured orders of about S$3.7b YTD, and order flow has been slower than ours and the street’s expectations. As such, we lower our new order win estimates to S$5.7b for FY14 and S$6b for FY15, compared to S$6.7b and S$6.5b earlier. Our fair value estimate correspondingly drops to S$11.75 (prev. S$12.31), but given the potential upside and forecasted dividend yield of ~4.8% on the stock, we maintain our BUY rating on KEP.
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