Keppel Corp FY08 Results - Cautiously forward :OCBC

Keppel Corporation

Cautiously forward

SINGAPORE Company Update
23 January 2009

Maintain
HOLD

Previous Rating: HOLD
S$4.04

Fair Value: S$4.40

General Data
Issued Capital (m) 1,593
Mkt Cap (S$m/US$m) 6,436 / 4,296
Major Shareholder Temasek Holdings (21.2%)
Free Float (%) 78
NAV per share (S$) 2.81
Daily Vol 3-mth (‘000) 9,680
52Wk High (S$) 12.500
52Wk Low (S$) 3.350

Kelly Chia
(65) 6531 9817
e-mail: kelly@ocbc-research.com

Offshore surprises.
Keppel Corporation (KepCorp) reported topline growth of 13.2% YoY to S$11.8b for FY08 while net profits inched ahead 6.9% YoY to S$1.09b. The results exceeded our expectations in view of a S$3b revenue spurt from the Offshore and Marine business in the final quarter. KepCorp's order book of S$10.8b consists of deliveries stretching till 2012.

Upwards, but cautiously.
We have revised our previously bearish FY09F estimates to cater for better guidance from management that KepCorp's "yards will be busier in 2009 than 2008" and its plan to deliver up to 14 rigs will load its coffers with delivery payments. KepCorp's Infrastructure division will become a major revenue contributor (~30%) in FY09F and this has also aided in bumping up our forecasts. However, our enthusiasm is tempered by the possibility of delays in payments and rig deliveries. Overall, our FY09F revenue and bottomline estimates are revised 18% and 21%
higher.

Property drags.
Keppel Land's (KepLand) revenue for 4Q08 plunged 46.8% YoY to S$197.4m due to completion of projects in previous quarters and a slowdown in property sales. No provisions were made but we reckon that there is still looming risk over write-downs of its investment properties. KepLand's high earnings concentration towards the residential and office sectors puts it at high earnings risks. As such, we have incorporated lower forecasts and decided to peg a higher effective group discount rate of 50% to our valuation.

Possible positive surprises.
KepCorp also announced that its Sino-Tianjin venture has entered into an MOU with Sembawang Engineers and Constructors for feasibility study for the development of a US$1b solar polysilicon production plant. While details are not available yet, we are hopeful that this could translate to an EPC contract. On the M&A front, management updated that it is on the prowl for good companies that are currently heavily geared and have become cash strapped due to an aggressive expansion drive in the last 2 bull years.

Maintain HOLD.
Since our last report that iterated our cautious stance, KepCorp fell ~11%. However, our SOTP fair value has been bumped up to S$4.40 (prev. S$4.00) as we work in less bearish estimates. We are maintaining our HOLD rating as we take a wait-and-watch stance for the time being to let any residual delays and cancellations be flushed out of the system. We will become buyers at its recent lows of ~S$3.95.