Company Overview
Keppel Corporation is a diversified conglomerate with four core business segments: Offshore & Marine, Infrastructure, Property, and Investments.
+ FPSO conversion projects worth a total of S$190mn
+ Positive on production-related conversion orders
+ Maintain Accumulate and TP of S$12.25
What is the news?
Keppel secures two conversion contracts worth a total value of S$190mn. The contracts include:
(i) the conversion of an FPSO from SBM Offshore that will host the Stones ultra deepwater development by Shell in the Gulf of Mexico, and
(ii) the conversion of an FPSO for the Bukit Tua Field from M3nergy Offshore (scheduled for completion in 2Q14).
Both contracts are awarded from Keppel’s repeated customers. Including the Stones FPSO, Keppel has undertaken 20 major projects for SBM Offshore since 2000.
How do we view this?
We are positive on the production-related conversion orders. Latest contract wins lifted YTD order wins to S$4.4bn, against our full-year order estimate of S$5.9bn for FY13E.
Investment Actions?
We maintain our FY13E-14E earnings estimates and SOTPbased TP of S$12.25. Keppel Corp currently trades at 10.9x FY14E P/E and 2.0x FY13E P/B. Historically, the stock traded at a long-term 5-year average of 10.7x forward P/E, with a peak of 22.3x during the last rig newbuild upcycle and a low of 4.9x in the GFC. We continue to like Keppel, in view of
(i) its global yard network, which is well-placed to benefit from the positive O&M outlook,
(ii) resilient O&M margins, and
(iii) attractive dividend yield at ~4.4%. Maintain Accumulate.
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