Simons Trading Research

Author: simonsg   |   Latest post: Mon, 6 Jun 2022, 4:02 PM


Keppel Corporation - Strong Recovery in 3Q21; Setting Up for a Robust 2022

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  • Keppel Corporation’s 9M21 revenue rose 14% y-o-y with all four business segments contributing to the strong performance.
  • With the prospects of a better-than-expected final dividend, completion of the SPH acquisition and finalisation of the merger with Sembcorp Marine, the stage appears to be set for a period of solid share price performance in 2022. Maintain BUY.

Keppel Corporation Reported a Very Strong Turnaround

  • For 9M21, Keppel Corporation (SGX:BN4) reported a strong turnaround on a y-o-y basis with all segments performing better (excluding extraordinary and one-off items). The company’s 9M21 revenue of S$5.5b (+14% y-o-y) was generated by all four business segments, and while it did not release any profit numbers, Keppel Corporation stated that “profit for 9M21 was a significant improvement y-o-y”. Keppel Corporation’s 9M21 revenue made up 80% of our 2021 forecast of S$6.8b.
  • Even better than 2019. Interestingly, management commented that its 9M21 financial performance, excluding extraordinary and one-off items, was even stronger than that of the pre-COVID-19 period, ie 9M19. Additionally, Keppel Corporation stated that the results of its 3Q21 quarterly asset assessment was positive in that, across all its businesses, it will not need to make any impairments.

Looking Forward to a Higher Final Dividend

  • During the analyst briefing, management pointedly KOM and thus far has reduced overheads by S$90m this year, resulting in positive EBITDA and a net profit for 9M21 (vs a net loss in 9M20). Its net orderbook as at end-9M21 was S$5.5b.

Urban Development Business Was Lumpy in 3Q21

  • On a 9M21 basis, home sales were strong, up 70% y-o-y to 3,460 units while from a 3Q21 perspective, Singapore, Vietnam and India Chinese property developers have injected a measure of uncertainty into the market, Keppel Corporation’s sales have been strong y-o-y due to urbanisation and the fact that the company’s exposure is in cities where there are strong fundamentals.

Connectivity Should Get Better From Here

  • With Singapore’s growing number of Vaccinated Travel Lanes (VTLs), M1 should stand to benefit from higher roaming revenue; however M1’s management noted that much of ASEAN, where it generates the bulk of its revenue, remains closed at present. It estimated that current VTL countries only contribute 8-10% of its annual revenue and thus will not have a meaningful impact on its overall profitability in 2021.

Asset Monetisation Should Exceed Targets

  • Keppel Corporation remains confident of its asset monetisation plans, and stated US courts had dismissed part of the claim. During the analyst call, Keppel Corporation’s counsel in the US arising from this issue.

Maintain BUY on Keppel Corp

  • We retain price, Keppel Corporation would trade at a 2022F P/E of 14.6x which is a slight discount to its past five-year average of 15.2x.
  • Catalysts: Finalisation and disclosure of the valuation of the O&M assets that will be divested; announcement of partial or full sale of its Southeast Asian or Australian logistics business.

Source: UOB Kay Hian Research - 29 Oct 2021

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Keppel Corp 6.56 +0.04 (0.61%) 1,566,300 

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