Keppel Corp

Kim Eng on 7 Feb 2014

What’s New
Keppel Corp has bagged its first rig building contract for the year. It was awarded by Malaysia’s UMW Oil & Gas for a KFELS B Class jackup rig worth USD218m. The vessel is scheduled for delivery in 3Q15. This would be the third KFELS B Class rig for UMW Oil and Gas. Its first two units were purchased from Standard Drilling, the original owner for the rigs. The first unit, UMW NAGA 4, was delivered in Feb 2013 and the second unit, UMW NAGA 5, would be delivered by 2Q14.

What’s Our View
The USD218m price tag exceeded the USD205-210m range for standard KFELS B Class rig orders placed in 2013. We believe the higher price for the new rig is due to: (1) Keppel’s tight yard slot availability and (2) the shorter delivery time of less than 20 months, compared with a normal build time of 22-24 months. Premium rig building yards in Singapore have gained pricing power
by offering a fast-track delivery option on the strength of their superior execution track record. This means defensible margins in the face of intense competition from the Chinese and Korean yards. In addition, Keppel’s ability to attract repeat orders from existing customers also demonstrates the quality and reliability of its product. Maintain BUY.