• We think KEPPEL CORPORATION (SGX:BN4) is gradually enjoying the first fruits of seeds planted in recent years and is on track to see steady earnings recovery from FY19F.
• With YTD orders at S$1.8bn, or 72% of our S$2.5bn order target for 2019, we see further upside and upgrade our orders to S$3bn for FY19F.
• 2Q19F preview: we expect core profit of S$125m (1Q19: S$203m) in the absence of gains in property and M1 acquisition.
• Maintain ADD, Target Price S$8.41.

Stronger O&M Earnings Visibility of 2.5 Years

• YTD orders of S$1.8bn surpassed the past four years trend since the oil price crisis. We estimate current order book to be S$5.4bn (+26% y-o-y) before taking in the 2Q19 revenue recognition.
• We expect the plans to hire 1,800 O&M staff in 2019 include the expansion of the renewable energy team to focus on chasing more deals. With YTD orders already at 72% of our target, we up our 2019 orders to S$3bn. No change to our 2020 target of S$3bn.
• We think appreciation has not been given to Keppel O&M for its increasing order book trend as it could end up with more than S$6bn by 2020F with S$3bn annual wins.

Tailwinds

• Keppel O&M ventured into the wind in 2010 with a US$220m contract to build a wind for Seafox in the harsh in the North Sea. Windfarm-related projects may not be drilling rigs momentum is likely to be more contract values to be from US$150m to US$200m. We also do not rule oil & gas vessels into vessels.
• Keppel O&M has secured S$700m of windfarm and we expect more pipeline.

How Big Is the Offshore Wind Sector?

• The Global Wind Energy Council (GWEC) estimates that the offshore wind has grown by 21% 2013, providing a installed capacity globally currently. GWEC sees potential for the sector to install GW by 2030.
• The UK has announced its plan to derive 30% of its electricity from China is expected to become the largest globally.

2Q19F Preview (results on 18 July 2019), Estimate Profit of S$125m

• Investors should not be overly concerned about land sale in SSTEC, further strength in O&M and asset recycling exercises, including the injection of SG4 from Keppel T&T into Keppel DC REIT (SGX:AJBU).
• Long-term catalysts could come KrisEnergy (SGX:SK3). See attached PDF report for further details.

M1 Consolidation No Drastic Costs; ADD With Target Price of S$8.41 on SOP

• We understand from management during the recent NDR in Malaysia that the consolidation of M1 is unlikely to lead to drastic cost cutting/hefty restructuring costs. We keep our profit contribution for M1 at S$67m in FY19F and S$58m in FY20F.
• Upside could come from the successful transformation leveraging M1’s 2.2m subscriber base and enterprise business.

Source: CGS-CIMB Research - 27 Jun 2019