Results within expectations, bumper payout. FY12 revenue came in 39% higher YoY at SGD14.0b while PATMI rose by 28% YoY to SGD1.91b after excluding revaluation gains and one-offs. Results were generally in line with expectations. Keppel proposed final dividend of 27 cts/sh, bringing full-year cash dividends to 45 cts/sh. In addition, it proposed dividend in specie of Keppel REIT units equivalent to 27.4 cts/sh. This brings total distribution to 72.4cts/sh, implying a yield of 6.4%. Maintain Buy with SOTP-based TP of SGD12.80.

O&M margins threading bottom. 4Q12 operating margin for O&M sector was flat at 12.8% (12.9% in 3Q12). We believe that margins are threading the bottom. Overall full-year margin came up to 13.5%, against our expectation of 14.0%. Despite conservative management guidance, we expect productivity and efficiency gains to contribute to higher operating margin of 14.2% in FY13F as Keppel O&M would deliver a record number of 22 newbuild units in the year.

Order win outlook remains rosy. O&M order win outlook remains positive with healthy pipeline of enquiries. Net orderbook currently stands at SGD12.8b. Our forecasted order win for FY13F stays at SGD5.4b, which we expect to come from a more balanced mixed of product types. The USD1.2b semisub contracts from Naftogaz are still under negotiation. Keppel does not rule out the possibility of walking away if final terms are unfavorable, demonstrating its discipline in taking on projects of a certain level of profitability. We infer that contracting environment must be strong, thereby allowing them to be selective.

Other segmental performances. Property segment’s exceptional performance this year is not expected to be repeated in FY13F. While still a small business segment, Infrastructure could see some improvement when the 800MW expansion of Keppel Merlimau Cogen Plant expansion goes into full operations in 2013.

Maintaining positive view. We maintain our Buy call on Keppel on strong O&M outlook with potential for margin to surprise on the upside in FY13F. Target price is maintained at SGD12.80.

Source: Maybank Kim Eng Research - 25 Jan 2013