• Weaker than expected results
• Infrastructure disappoints
• Not much clarity from Brazil

2Q15 results below

Keppel Corporation reported a 19.3% YoY fall in revenue to S$2.56b and a 2.3% decrease in net profit to S$396.7m in 2Q15, such that net profit accounted for 45% of our full year figure, below ours and the street’s expectations. Operating margin for the O&M division was lower at 13% (adjusted for restructuring of operations) in the quarter, vs. 14.7% a year ago and 12.0% in 1Q15.

A deliberate slowdown in the construction of rigs in Brazil as well as deferment of certain rig projects (outside Brazil) also impacted revenue in the quarter. However, what was more surprising was the continued poor performance from the infrastructure division which saw significant impairments in the quarter.

Infrastructure buoyed by one-offs; Doha disappoints again

In 2Q15, the group had to make further provisions related to the Doha North Sewage Treatment project which had been experiencing delays and cost overruns; management believes that this will be the final round of adjustments. Meanwhile, the infrastructure segment was boosted by close to S$260m gains from two transactions – the sale of a 51% interest in Keppel Merlimau Cogen and the restructuring of Crystal Trust and CitySpring Infrastructure Trust to form the enlarged Keppel Infrastructure Trust.

Still no payments from Sete Brasil

As for the six semi-submersible units for Sete Brasil, the first three units are 90%, 63% and 36% completed, respectively. Keppel Corp has not received any payment from its customer since the last payment in Nov 2014.

Maintain HOLD

To date, new order wins totaled about S$1.5b vs our full year forecast of S$2b. The group’s net order book stands at S$11.0b, with deliveries extending into 2020. Management still expects its yards to remain busy in the next two years, based on its current backlog.

However, taking into account the weaker-than-expected results, we tweak our earnings estimates and lower our SOTP-based fair value estimate from S$9.22 to S$8.41. Maintain HOLD.

Source: OCBC Research - 24 Jul 2015