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Long On Keppel Corp If You Can Afford It
Tradeable, Tradeable Ideas | 31 July 2014
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By: Raymond Leung
Articles (142) Profile
  1. Keppel announced outstanding top and bottomline performance for 2Q14. Net profit grew by 17.1 percent to hit $469.4 million.
  2. Keppel’s offshore and marine sector continues to contribute heavily to top and bottom lines. Order book currently stands at $14.1 billion.
  3. Newly opened Brazilian shipyard has been performing well. That yard will also benefit from Mexico’s offshore reformation.

Keppel Corporation (Keppel) announced its outstanding financial results last week. Keppel’s 2Q14 revenue was up by 3.3 percent year-on-year (YoY) to $3.2 billion from $3.16 billion. Net profit grew by 17.1 percent YoY to $469.4 million from $422.3 million.

The strong performance was mainly contributed by Keppel’s offshore & marine (O&M) business as its order book remains strong. Keppel’s order book stands at $14.1 billion with $3.2 billion worth of orders clinched year-to-date (YTD).

Currently, Keppel is reaching the limit of its building capacity for rigs resulting in the group’s shift of focus to obtain more orders for non-rig equipments. In total, 31 jack-up rigs are due to be delivered by 2016. Its YTD order book consists of 46 percent of non-rig equipment in comparison with 10 percent last year.

Margins for the O&M sector unexpectedly increased to 14.6 percent this quarter against 14.2 percent last quarter. This was much higher than the guidance of 10 percent to 12 percent given by its management.

There may be a potential upside for jack-up rigs due in 2015 as their current profit projections are calculated based on the more conservative profit margin.

The newly opened Brazilian shipyard has been performing well as its first semi-submersible rig is 70 percent complete while the second rig is 30 complete. Keppel expects the shipyard to begin on its work soon for the third rig.

Source: Keppel Corp, the new Brazilian yard could help boost Keppel's fortunes.

Overall, the Brazilian yard will not only benefit from the robust local offshore sector but also Mexico’s offshore energy reformation.

Ocean Mineral Singapore (OMS), a company with significant interest owned by Keppel announced that it has obtained a seabed exploration license from International Seabed Authority. A potential upside to Keppel may come from OMS if polymetallic is found in the seabed exploration.

An interim dividend of $0.12 was declared compared with last year’s $0.10 as analysts from OCBC Research gave Keppel a forecasted yield of 4.3 percent. CIMB Research reiterated its “Buy” call with a potential upside of 19.1 percent.

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Trained in fund management, Raymond is familiar with shares and various investment vehicles.

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Keppel Corp  6.250 +0.03 +0.48%   
Business: [FY18 Turnover] Infrastructure (44.1%), offshore & marine (O&M) (31.4%), property (22.5%), investments (2%).

Insight: Apr-19, 1Q19 revenue rose 4.1% underpinned by high... Read More

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