• US$735m contract turns effective
• World’s first-in-type
• 4.7% dividend yield

Golar contract turns effective

After announcing on 25 Jun 2014 a conditional contract with Golar Hilli Corp to perform a FLNG conversion, Keppel Corporation (KEP) has revealed more details on this project, which has turned effective. The contract is worth about US$735m (delivery in 1Q17), and there are also the options for two more similar units. Should the options be exercised at a later date (deliveries will then be in 3Q17 and 1Q18), this could add about US$1.4b worth of new orders for KEP.

World’s first-of-its-type; reaffirms KEP’s leadership

KEP will perform the world’s first-of-its-type conversion of an existing Moss LNG carrier, the Hilli, into a Floating Liquefaction Vessel, and this reaffirms the group’s leadership in complex offshore conversion projects. This is also a good opportunity to offer solutions to help address the growing midstream needs in bringing small and mid-scale LNG to market to meet the rising global demand for energy. In particular, a mid-sized FLNG offering such as this offers a faster and more cost effective liquefaction solution. According to Golar, the 1Q17 delivery date means that it will be several years ahead of any potential competitors. Recall that Keppel Shipyard had successfully delivered to Golar the world’s first Floating Storage and Regasification Unit (FSRU) back in 2008, which was followed by two more similar units.

Also secures more contracts

Keppel also announced recently that it has secured another FPSO conversion contract and a subsea construction vessel (SCV) contract worth a total of S$368m. The customer of the FPSO conversion contract is Bumi Armada, while the customer for the SCV contract is Baku Shipyard.

4.7% dividend yield on a quality stock

KEP has secured orders of about S$3.2b YTD, accounting for close to half of our full-year new order win estimate, and we maintain our BUY rating with S$12.25 fair value estimate on the stock. Meanwhile, the forecasted dividend yield of about 4.7% should provide support to the share price.

Source: OCBC Research - 4 Jul 2014