Sequential dip in 4Q13 O&M margin to 14.2% was expected due to abnormally high margins in the previous quarter. 

 

Final DPS of 30 SGD cts brings full-year DPS to 49.5 SGD cts, translating into an attractive yield of 4.5%. 

FY13 core PATMI of SGD1,411.8m (-26.2% YoY) was largely within our expectations. The O&M segment delivered a sturdy performance, with 4Q13 operating margin holding steady at 14.2% (3Q13: 16.5%, 4Q12: 12.8%). The sequential dip was expected due to the higher margin in the previous quarter as more jackups reached completion stage. Full-year operating margin of 14.6% was in line with our initial forecast of 14.7%. Further provisions for EPC contracts in Doha North and Runcorn weighed on the infrastructure division, which sank into a net loss of SGD14m for FY13. 

With SGD6.9b worth of new order wins in FY13, O&M net orderbook rose to a record-high SGD14.2b (3Q13: SGD13.6b), offering strong revenue visibility. More importantly, the stable operating margin for 4Q13 reflects positively on Keppel’s execution ability and its success in focusing on profitability rather than top line. 

 

Order win prospects for the O&M segment remain rosy with a steady stream of enquiries from customers across all product types. Keppel is maintaining its “Near Market, Near Customer” strategy (strengthening presence in Brazil, Mexico and the Middle East) and sharpening its technology edge to stay ahead of competition. The key catalysts in 2014 would be: (1) confirmation of Golar’s FLNG conversion project, potentially worth USD800m with options for two more units, and (2) six-rig contract upon finalisation of the Mexican yard JV with Pemex. Maintain BUY. 

 

Source: Maybank Kim Eng Research - 24 Jan 2014