Keppel Corporation reported a 6.1% YoY fall in revenue to S$2.8b but a 6.4% increase in net profit to S$360.2m in 1Q15, such that net profit accounted for 22% of our full year figure, below our expectations. Eight rigs have been deferred due to customer requests, in which Keppel will obtain some compensation. Meanwhile, the Brazil situation remains fluid as Sete Brasil seeks a solution to its financial woes, and payments remain suspended. To date, Keppel’s new order wins totaled only about S$500m, and we lower our new order win assumptions. At the same time, we also note the recent recovery in valuations for oil and gas stocks, and increase our P/E for the O&M segment from 12x to 13x, resulting in a rise in our fair value estimate from S$8.65 to S$9.22. Maintain HOLD.
So-so 1Q15 results
Keppel Corporation reported a 6.1% YoY fall in revenue to S$2.8b but a 6.4% increase in net profit to S$360.2m in 1Q15, such that net profit accounted for 22% of our full year figure, below our expectations. Operating margin for the O&M division was also lower at 12.0% in the quarter, vs. 14.6% a year ago and 13.2% in 4Q14. Meanwhile, eight rigs have been deferred (five from Transocean and three from Fecon) due to customer requests, but Keppel will obtain some compensation for fulfilling the requests.
Sete Brasil in 90-day moratorium
In Brazil, lenders and shareholders have declared a 90-day moratorium to seek a solution for Sete Brasil’s financial woes. A favoured solution would be to reduce the 29-rig construction project to just 13 units, focusing on the two most experienced and financially strong yards, Keppel and SMM. We think this is likely to be the most favoured solution, but refrain from being too optimistic before the final announcement by Sete Brasil, who also has to resume its milestone payments.
S$500m new order wins so far
To date, new order wins totaled only about S$500m, vs. S$5.5b for the whole of FY14 and S$7b for FY13. As such, we are lowering our FY15F and FY16F new order win forecasts from S$4.5b and S$3.5b to S$2b and S$3b, respectively. Our S$2b forecast for this year could be partially fulfilled by new wins from Mexico, as it was previously announced that the first phase of the new yard that is being built for PEMEX will support the construction of six rigs.
Maintain HOLD
The group’s net gearing stood at 0.37x, and is in a good position with its S$11.3b net order book (as at end Mar 2015,), which will keep its yards busy for the next two years. Though we lower our new order win assumptions, we also note the recent recovery in valuations for oil and gas stocks, and increase our P/E for the O&M segment from 12x to 13x, resulting in a rise in our fair value estimate from S$8.65 to S$9.22. Maintain HOLD.
Keppel Corporation reported a 6.1% YoY fall in revenue to S$2.8b but a 6.4% increase in net profit to S$360.2m in 1Q15, such that net profit accounted for 22% of our full year figure, below our expectations. Operating margin for the O&M division was also lower at 12.0% in the quarter, vs. 14.6% a year ago and 13.2% in 4Q14. Meanwhile, eight rigs have been deferred (five from Transocean and three from Fecon) due to customer requests, but Keppel will obtain some compensation for fulfilling the requests.
Sete Brasil in 90-day moratorium
In Brazil, lenders and shareholders have declared a 90-day moratorium to seek a solution for Sete Brasil’s financial woes. A favoured solution would be to reduce the 29-rig construction project to just 13 units, focusing on the two most experienced and financially strong yards, Keppel and SMM. We think this is likely to be the most favoured solution, but refrain from being too optimistic before the final announcement by Sete Brasil, who also has to resume its milestone payments.
S$500m new order wins so far
To date, new order wins totaled only about S$500m, vs. S$5.5b for the whole of FY14 and S$7b for FY13. As such, we are lowering our FY15F and FY16F new order win forecasts from S$4.5b and S$3.5b to S$2b and S$3b, respectively. Our S$2b forecast for this year could be partially fulfilled by new wins from Mexico, as it was previously announced that the first phase of the new yard that is being built for PEMEX will support the construction of six rigs.
Maintain HOLD
The group’s net gearing stood at 0.37x, and is in a good position with its S$11.3b net order book (as at end Mar 2015,), which will keep its yards busy for the next two years. Though we lower our new order win assumptions, we also note the recent recovery in valuations for oil and gas stocks, and increase our P/E for the O&M segment from 12x to 13x, resulting in a rise in our fair value estimate from S$8.65 to S$9.22. Maintain HOLD.
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