• Results in line
• Outlook remains positive
• 4.3% dividend yield

2Q14 results in line

Keppel Corp reported a 3.3% YoY rise in revenue to S$3.18b and a 17.1% increase in net profit to S$406.0m in 2Q14, such that 1H14 net profit met 49% of our full year estimates, in line with expectations.

O&M division operating well

Operating margin in the O&M division remained strong in the quarter, at 14.7% in 2Q14 vs. 14.2% in 2Q13. Excluding gains from the sale of Keppel Kazakhstan in Feb this year, O&M operating margins continued to hold up at 14.5% for 1H14, vs. 14.1% for 1H13. The semi-submersibles for Sete Brasil are also on track, with the first unit 70% completed, the second 30% completed, and the third unit is now in the initial stages of construction. Though the deepwater market has softened, management sees the jack-up market as resilient, and the group is still receiving healthy enquiries for the standard B-Class jack-ups and specialised high spec units.

Softening property market; upbeat on infrastructure

In the property segment, home transactions in Singapore and China continued to slide in 2Q14, but the softening market is also opening prospects for Keppel. As for the infrastructure division, no additional provisions were made in 1H14. The Doha North Sewage Treatment Works is going through its testing and commissioning phase, and is ready to take in sewage. In Singapore, demand for data centre space remains strong, and Keppel Datahub 2 (completed in 2Q14) is receiving “strong enquiries” from the market.

4.3% dividend yield on a quality stock

KEP has secured orders of about S$3.2b in 1H14, accounting for close to half of our fullyear new order win estimate, and bringing its net order book to S$14.1b (as at 30 Jun) with visibility into 2019. Meanwhile, an interim dividend of S$0.12/share has been declared in 1H14, compared to a S$0.1/share interim dividend and special dividend in specie of S$0.095/share in 1H13. We roll forward our valuations to blended FY14/15F earnings, and update the market values of the group’s listed entities. As such our fair value estimate rises from S$12.25 to S$12.31. Maintain BUY with forecasted dividend yield of ~4.3%.

Source: OCBC Research - 25 Jul 2014