Keppel Corp (KEP) reported a set of in-line results last week. The net order book for the O&M division stood at S$12.5b at the end of 2014, which will keep Keppel’s yards busy this year and next. What the market will focus on, however, is KEP’s offer to privatise KepLand, which we believe has taken many by surprise. Given 1) the rich price offered for KepLand and 2) synergies for the combination may not be immediately apparent, there may be some near-term weakness in KEP’s share price. We incorporate a higher conglomerate discount of 10% (5% prev.) for the privatization of KepLand, and after updating the market values of KEP’s listed entities, our fair value estimate drops from S$9.89 to S$9.14. However, given the upside potential of 19% (includes 5.8% dividend yield), we maintain our BUY rating on the stock; longer-term investors may wish to accumulate on dips.
Results in line; S$0.36/share final dividend
Keppel Corp (KEP) reported a 9.1% YoY rise in revenue to S$3.9b and a 6.1% increase in net profit to S$725.9m in 4Q14, bringing full year net profit to S$1.88b vs S$1.85b in FY13. Adjusting for one-off items, we estimate recurring net income to be about S$1.44b, close to our full year estimate of S$1.49b. A final dividend of S$0.36/share has been declared, compared to S$0.30/share last year (and also beats our expectations of S$0.35/share). This brings total dividends for FY14 to S$0.48/share.
Yards remain busy with order book execution
Despite the fall in oil prices, KEP is in a comfortable position with its S$12.5b net order book. The group will be delivering 15 rigs this year, and management said that its yards will be fully utilized this year, 80% in FY16 and 60% in FY17, based on the current order book. KEP has also seen no cancellations on its rig contracts and there has not been any renegotiation of payments so far. However, there have been a few requests from customers to delay delivery of orders.
Seeking to privatise Keppel Land
Ending the suspense of the trading halt, the group announced that it has launched a voluntary unconditional cash offer for all the remaining shares of its 54.6%-owned subsidiary, Keppel Land. A base offer price of S$4.38 is offered for each KepLand share, which is at a 25% premium to the one-month VWAP of KepLand shares preceding the offer. A higher offer price of S$4.60 (31% premium) will be paid when KEP acquires more than 90% of KepLand’s shares.
Share price may see near-term weakness
We believe that this privatisation attempt has taken the market by surprise. Given 1) the rich price offered for KepLand and 2) synergies for the combination may not be immediately apparent, there may be some near-term weakness in KEP’s share price. We incorporate a higher conglomerate discount of 10% (5% prev.) for the privatization of KepLand, and after updating the market values of KEP’s listed entities, our fair value estimate drops from S$9.89 to S$9.14. However, given the upside potential of 19% (includes 5.8% dividend yield), we maintain our BUY rating on the stock; longer-term investors may wish to accumulate on dips.
Keppel Corp (KEP) reported a 9.1% YoY rise in revenue to S$3.9b and a 6.1% increase in net profit to S$725.9m in 4Q14, bringing full year net profit to S$1.88b vs S$1.85b in FY13. Adjusting for one-off items, we estimate recurring net income to be about S$1.44b, close to our full year estimate of S$1.49b. A final dividend of S$0.36/share has been declared, compared to S$0.30/share last year (and also beats our expectations of S$0.35/share). This brings total dividends for FY14 to S$0.48/share.
Yards remain busy with order book execution
Despite the fall in oil prices, KEP is in a comfortable position with its S$12.5b net order book. The group will be delivering 15 rigs this year, and management said that its yards will be fully utilized this year, 80% in FY16 and 60% in FY17, based on the current order book. KEP has also seen no cancellations on its rig contracts and there has not been any renegotiation of payments so far. However, there have been a few requests from customers to delay delivery of orders.
Seeking to privatise Keppel Land
Ending the suspense of the trading halt, the group announced that it has launched a voluntary unconditional cash offer for all the remaining shares of its 54.6%-owned subsidiary, Keppel Land. A base offer price of S$4.38 is offered for each KepLand share, which is at a 25% premium to the one-month VWAP of KepLand shares preceding the offer. A higher offer price of S$4.60 (31% premium) will be paid when KEP acquires more than 90% of KepLand’s shares.
Share price may see near-term weakness
We believe that this privatisation attempt has taken the market by surprise. Given 1) the rich price offered for KepLand and 2) synergies for the combination may not be immediately apparent, there may be some near-term weakness in KEP’s share price. We incorporate a higher conglomerate discount of 10% (5% prev.) for the privatization of KepLand, and after updating the market values of KEP’s listed entities, our fair value estimate drops from S$9.89 to S$9.14. However, given the upside potential of 19% (includes 5.8% dividend yield), we maintain our BUY rating on the stock; longer-term investors may wish to accumulate on dips.
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