Keppel Corporation - Connecting the Dots ~ World’s First Subsea Fibre Connecting Singapore to the US

Date: 29/03/2021

Source  :  CIMB
Stock  :  Keppel Corp       Price Target  :  6.40      |      Price Call  :  BUY
        Last Price  :  6.74      |      Upside/Downside  :  -0.34 (5.04%)

  • Facebook, Telekomunikasi Indonesia and Keppel T&T to own/develop a subsea cable connecting Singapore to the West Coast US via Indonesia.
  • Keppel Corp’s key proposition is its ability to fund (via monetisation of other assets) and Keppel Capital’s network of new money.
  • There are synergies to be reaped for Keppel T&T, Keppel Data Centre, M1 and expanded product offering, spanning across international connectivity and data services.

World’s First Subsea Fibre Connecting Singapore to the US

  • The consortium of Keppel T&T (via Keppel Midgard), Facebook and Telekomunikasi Indonesia International entered into an agreement to own and develop the Bifrost Cable System, the world’s first subsea cable system that directly connects Singapore to the west coast of North America via Indonesia through the Java Sea/ Celebes Sea.
  • The project is scheduled to be completed in 2024 and spans over 15,000km. The multiple fibre paired, high performance Bifrost Cable System will be the largest capacity high-speed transmission cable across the Pacific Ocean.
  • Keppel Midgard’s share of the total project costs as a joint build partner will be ~US$350m (or S$467m). Alcatel Submarine Networks (ASN) will supply and install the cable system.

What Does Keppel Bring to the Table?

  • We think funding capability is the key proposition that Keppel Corp (SGX:BN4) brings to the table. The project costs for the Bifrost Cable System will like Keppel Data Centres and M1.
  • We understand that Keppel Corp has had advance discussions with some potential partners who could be co-owning or leasing the fibre pairs. Keppel Corp expects the majority of the fibre pairs to be pre-committed before completion of the construction.
  • This project earmarks a major milestone for Keppel Corp as the transnational critical infrastructure will enhance Singapore’s role as a digital hub, as well as support and accelerate the region’s growing digital connectivity needs.
  • In recent years, cloud giants, including Google, Facebook, Microsoft, and Amazon, have been getting more involved in California and Hong Kong via Tawan which could be due to political pressure between China and the US.

Reiterate ADD for Keppel Corp With a Target Price of S$6.40

  • Our SOP-based target price for Keppel Corp remains at S$6.40.
  • Near-term re-rating catalysts include successful sale or chartering of rigs or winning of renewable orders.
  • Downside risks: A prolonged O&M restructuring process.

Source: CGS-CIMB Research - 29 Mar 2021

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Keppel Corp 6.74 -0.03 (0.44%) 4,173,500 

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