Keppel Corp

Kim Eng on 19 Apr 2013

No sweat over weaker performance. 1Q13 results were within ours’ and consensus’ expectations with revenue of SGD2,759m (-35% YoY, -8% QoQ) and core PATMI of SGD331m (-56% YoY, +9% QoQ). The weaker YoY performance was due mainly to lumpy profit recognition of Reflections at Keppel Bay last year. While stock has been under pressure due to concerns on competition from Chinese shipbuilders, we remain confident in Keppel’s strong position as a premium rigbuilder. Maintain Buy, SOTP-based TP adjusted to SGD12.85.

O&M margins has turned higher. O&M operating margin for 1Q13 turned up higher at 14.1% after treading near the 13% level for the preceding three quarters. We expected this to be so as O&M segment reaps efficiency gains from the execution of repeat jackup orders. While Keppel maintains its conservative long-term margin guidance of 10-12%, we have forecasted O&M operating margin this year to be higher at 14.2%. We believe that current margin level is sustainable this year as 1Q13 turned up higher despite having incorporated conservative recognition of its first Sete Brasil semisub.

Strong jackup orders but deepwater orders slow. O&M order win momentum has been steady with SGD2.1b of new orders secured YTD, on track to meet our target of SGD5.4b for FY13F. Outstanding orderbook stood at SGD13.1b as at end-1Q13, providing good earnings visibility. Deepwater orders however have been slow with no semisub contracts yet. Keppel maintains that enquires are still healthy and guided for at least one semisub order by 2H13. We remain optimistic that our order win expectations could be met.

Growth in infrastructure segment. The first 400MW of the Keppel Merlimau Cogent Plant expansion has started operation in end-March with another 400MW capacity coming onstream in mid-2013 allowing it to capture the growing demand in local energy market.
Maintain Buy. We believe that fundamentals in the offshore & marine remain intact and kept our forecasts unchanged. Maintain Buy, TP marginally higher at SGD12.85 as we adjust SOTP components.