Keppel Corporation: Forms Keppel Urban Solutions

Date: 20/10/2017

Source  :  OCBC
Stock  :  Keppel Corp       Price Target  :  7.73      |      Price Call  :  BUY
        Last Price  :  8.25      |      Upside/Downside  :  -0.52 (6.30%)

  • 30% rise in PATMI boosted by disposal gains
  • Looking to redevelop Keppel Towers
  • New business unit, KUS

3Q17 Core Earnings in Line

Keppel Corporation (KEP) registered a 10.8% YoY rise in revenue to S$1.6b and a 30.0% increase in PATMI to S$291.8m in 3Q17, boosted by S$128m gain on disposal of subsidiaries (sale of Keppel Lakefront (Nantong), Wiseland Investment (Myanmar), Keppel DC Singapore 4, Keppel Verolme and other units). As such we estimate core net profit to be about S$164m, such that 9M core earnings accounted for 73% of our full year estimate, which is within expectations.

The O&M division continued to breakeven in 3Q17, while the property division saw a 26% YoY rise in net profit to S$198m in the quarter. Infrastructure’s net profit was 3% YoY higher at S$40m while Investment’s net profit was S$53m in 3Q17 vs. S$18m in 3Q16. Property was the top contributor to the group’s earnings at 68%, followed by Investments at 18% and Infrastructure at 14%.

Operational Updates

Under Property, the group is looking at the possibility of redeveloping Keppel Towers; the Serangoon North project is expected to be launched in mid-2018. KEP also reached an agreement in the quarter with TS Offshore to defer the delivery of its jackup from 2017 to 2019.

New orders secured YTD totaled slightly more than S$1b, including LNG containerships and carriers, dredgers as well as FPSO conversions. As of 30 Sep, the O&M net order book was S$3.9b, excluding the Sete Brasil projects.

Forms New Business Unit, Keppel Urban Solutions

KEP will also establish a new business unit, Keppel Urban Solutions (KUS), which aims to be an end-to-end integrated master developer of smart, sustainable precincts in Asia-Pacific so as to capitalise on the mega trends of rapid urbanization and the increasing global focus on sustainability. KUS will leverage on Keppel’s more than two decades of experience as the master developer of large scale projects in Asia, including the China-Singapore Suzhou Industrial Park, Sino-Singapore Tianjin Eco-City, SinoSingapore Jinan Eco-City, as well as Keppel Bay in Singapore.

Meanwhile, we tweak our estimates and our fair value rises from S$7.36 to S$7.73 with higher valuations in the property segment. Maintain BUY.

Source: OCBC Research - 20 Oct 2017

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