KepCorp

Kim Eng on 19 Jan 2012


Steady performance expected. Keppel Corp will be releasing its full year FY12 results on 26th January. Our full-year forecast stands at $1,480.1m, slightly ahead of consensus. For 4Q11, we expect Keppel to maintain its Offshore & Marine (O&M) earnings and margins. With the demand outlook for offshore rigs still positive over the medium term, we maintain our Buy recommendation at the target price of $12.60.


Massive earnings base. Our FY12 net profit forecast of $1,480.1m represents a 9% YoY decline versus FY10, but an increase of 4.2%, if we were to strip out exceptional items. We are expecting a final dividend of 22cts per share for a full-year dividend of 39 cents, or a yield of 3.7%. This estimate is based on Keppel’s usual historical payout of between 40 and 50% of its earnings.


O&M still going strong. For FY12, we expect to see increasing contributions from orders secured in FY10 and FY11. This is more than enough to sustain it through the current lull. However, margins are expected to decline, as it is at the tail-end of converting orders secured during the 2008 peak, where the pricing environment was more favourable. We expect O&M EBIT margins to decline from 24% to 21%.


Record orderbook in FY11. Keppel secured a record US$7.8b in orders in FY11, comprising mainly jackup newbuilds. While the market for floaters remains slow, Keppel did secure a key US$809m semisubmersible order from Sete Brazil. The order has greater significance as Sete is a proxy for Petrobras that has a US$224b capex budget. We can therefore expect more Petrobras-related orders in the future, although the timing of these potential orders remains sketchy.


Earnings sustainable. We are confident that Keppel can secure a minimum of US$6b in new orders in FY12, excluding Petrobras. Its current orderbook is estimated at US$8b, which will keep it busy over the next two years. With the security of earnings and an expected resumption of rig orders in the coming months, Keppel remains a Buy.