Results within expectations, maintain Buy. 2Q13 results were within our expectations with revenue of SGD3,076m (-12% YoY, +11% QoQ) and PATMI of SGD347m (-33% YoY, -3% QoQ). The weaker YoY performance was due to lumpy property recognition mainly from sale of Reflections units last year. 1H13 PATMI makes up 48% of our FY13F forecasts. An interim cash dividend of 10 cts/sh was declared with additional dividend-in-specie of Keppel Reit units on the basis of 8 units for every 100 Keppel shares (~10.8cts/sh). After this round of distribution, Keppel would have disposed most of its direct stake (~5.6%) in Keppel Reit. Maintain Buy, SOTP-based TP of SGD12.12.

Sustained O&M margins. O&M margin for 2Q13 was sustained QoQ at 14.1%, off the lows of the 13% levels seen last year. Our FY13F O&M operating margin forecast is at 14.4%, but we believe that there are opportunities for upside surprise from better execution. Keppel remains cautious and flags competition from Korean and Chinese yards. While we have been wary of the risks, our view is that average rig prices could trend incrementally higher leading to marginal margin expansion, and not a decline.

Demand for rigs remains strong, stepping up to the competition. Overall demand for newbuild rigs from various markets remains encouraging. YTD order wins have reached SGD3.5b with net orderbook now at SGD13.1b. It also announced that it has developed a new drillship solution and is working to commercialise this new design. The venture into the drillship market reflects the strong market demand for such units and Keppel is stepping up in order to remain competitive. We believe that confidence in its design would be helped by its established rigbuilding track records and strong customer relationships.

Change in leadership. What came as a bit of an early surprise was the announcement of a change in leadership. The new successors have nevertheless been with Keppel for many years and we believe they have the capability to bring the company to the next lap.

Maintain Buy, TP SGD12.12. We adjust our SOTP TP to SGD12.12 (from SGD12.10) for updated market values. Maintain Buy.

Source: Maybank Kim Eng Research - 19 Jul 2013