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Simons Trading Research

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

 

Keppel Corporation - 1Q22 Energy & Environment Segment More Than Offsets China-Related Weakness

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  • Keppel Corp reported a 9% y-o-y increase in 1Q22 revenue to S$2.1b, largely in line with our estimate. The highlight of the quarter was the energy and environment segment which saw a 43% y-o-y jump in revenue while urban development suffered due to COVID-19- related lockdowns in China.
  • With project launches being back-end loaded in 2H22, this segment could yet deliver a turnaround this year. Maintain BUY.

Keppel Corp's Strong 1Q22 Bodes Well for the Rest of 2022

  • Keppel Corporation (SGX:BN4) reported a reasonably strong 1Q22 business update with revenue for the quarter increasing by 9% y-o-y to S$2.1b. While there was a robust contribution from the energy & environment segment, with revenue improving by 43% y-o-y to S$1.5b, this was offset by the urban development segment which saw its revenue plummet 60% y-o-y, mainly as a result of poor performance from China.
  • We highlight that Keppel Land’s home sales are back-end loaded in 2022 and thus view Keppel Corp’s 1Q revenue as largely in line with our estimates: its 1Q revenue made up 21% of our full-year estimates.

Update on Merger With Sembcorp Marine (SMM)

  • Keppel Corp reiterated that it, and Sembcorp Marine (SGX:S51), will stick to the timeline of 30 Apr 22 for an announcement on the definitive terms regarding their merger. Nevertheless, the company pointed out that the global rig market has picked up significantly with a meaningful strengthening in utilisation rates while day rates have also firmed up. Thus, it noted that its RigCo and AssetCo have received a number of charter and acquisition enquiries which was not the case a year ago.
  • Sale of legacy rigs and associated receivables to AssetCo. During the analyst call, Keppel Corp's management stated that the merger with SMM and the potential sale of legacy rigs and associated receivables to AssetCo is inter-conditional. Regarding the sale of its rigs to a third party, the company conceded that a bareboat charter of its rigs is more likely than a sale given that it has witnessed more parties looking to discuss about bareboat charters vs an outright sale.
  • Nevertheless, Keppel Corp remains confident that it will be able to monetise these assets in 3-5 years, and that the provisions that it has taken in the past are adequate for now.

Strong Performance From the Energy & Environment Segment

  • While the offshore marine segment saw a 22% y-o-y increase in revenue in 1Q22, it was still in a loss-making position although management did comment that this loss had been “significantly reduced”.
  • Keppel Infrastructure was the stand-out business segment with a 57% y-o-y increase in revenue due to higher power and gas sales as well as higher revenue recognition from the Integrated Waste Management Facility project in Hong Kong.

China Property – a Millstone for Now

  • During the analyst briefing, Keppel Corp's management stated that it remains bullish on the China property market in the medium seek to deploy more capital into natural gas.

Keppel Corporation - Earnings Forecast Revision & Recommendation

  • No changes to our surprise.
  • At our target price, Keppel Corp would trade at a 2022 P/E of 15.5x which is approximately 0.5 standard deviation above its past five-year average of 13.0x (excluding 2020), and implies a 2022 P/B of just over 1.0x which we view as fair.
  • Share price 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 - 22 Apr 2022

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

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