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Simons Trading Research

Author: simonsg   |   Latest post: Thu, 14 Nov 2019, 5:02 PM

 

Keppel Corporation - Temasek Offer – Prelude for Restructuring; BUY

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  • Maintain BUY with new SGD7.80 Target Price from SGD7.18, 34% upside plus 4% yield.
  • Temasek’s announcement of a cash partial offer for 30.55% of Keppel Corporation shares points to the current market price being undervalued. If successful, Temasek will end up with an aggregate 51% shareholding in Keppel Corporation.
  • We believe the partial offer raises the possibility of restructuring at Keppel Corporation, which could unlock value. As such, we lower our conglomerate discount to 13% (from 20%), which leads to a higher target price.

Temasek Is Offering SGD7.35/share in Cash to Acquire An Additional 30.55% Stake in Keppel Corp

  • Upon completion, Temasek will own 51% stake in Keppel Corporation (SGX:BN4). The intention is for Keppel Corporation to remain listed on SGX.
  • The partial offer can only be made after the pre-conditions (including domestic and foreign regulatory approvals) have been fulfilled or waived, and this may take several months.
  • The partial offer represents an opportunity for shareholders to realise part, or potentially all, of their investment at a premium over the last traded price prior to the announcement.
  • The partial offer is successful if:
    1. Of the total number of shares voted (Temasek is not eligible to vote), more than 50% are in favour of the partial offer; and
    2. At least 30.55% of the shares are tendered into the partial offer, such that Temasek holds 51%.
  • Following the successful close of the partial offer, Temasek intends to work with Keppel Corporation’s board of directors to undertake a comprehensive strategic review of the company’s businesses, with the objective of creating sustainable value for all shareholders.
  • See Keppel Corp Announcements; Keppel Corp Latest News.

Valuation

  • Diversified asset structure with huge value unlocking potential.
  • Keppel has multiple businesses in different industries, and we use the SOP methodology for valuation, before arriving at a new Target Price of SGD7.80/share based on a 13% conglomerate discount, vs a previously higher 20% discount.
  • See Keppel Corp Share Price; Keppel Corp Dividend History.

Source: RHB Invest Research - 22 Oct 2019

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