Keppel  Corp  (KEP)  signed  an  MoU  with  two  subsidiaries  of  PEMEX, Mexico's national  oil  company  (NOC),  to  set  up  a  new  yard  in  Mexico. The USD150m first phase will be developed to support the construction of  six  KFELS  B  Class  jackup  rigs,  which  we  estimate  to  have  a  total value of USD1.32bn (SGD1.65bn). The news is positive. Re-iterate BUY, with an unchanged TP of SGD12.24.     

- MoU with PEMEX for new yard in Mexico. KEP unit Keppel Offshore & Marine (O&M) has signed a Memorandum of Understanding (MoU) with PEMEX  Exploración  y  Producción  (PEP)  and  P.M.I.  Norteamérica,  S.A. de  C.V.  (PMI),  subsidiaries  of  Mexico's  NOC  PEMEX,  to  set  up  a  yard facility in Mexico with a total investment value of USD400m over several phases.  The  first  phase  costing  USD150m  will  support  the  construction of six KFELS B Class jackup rigs for PEP.  

- Potential  USD1.32bn  addition  to  orderbook.  Following  the  MoU,  the next  step  for  KEP  is  to  finalise  the  joint  venture  (JV)  structure  with PEMEX.  No  details  were  disclosed  on  the  JV  split,  order  value  and delivery dates for the six jackup rigs. Assuming a unit price of USD220m, the  value  of  the  six  rigs  is  estimated  at  USD1.32bn  (SGD1.65bn).  We believe  these  projects  will  only  contribute  to  group  figures  from  FY15 onwards, at the earliest, with staggered revenue recognition.

- Capex  likely  to  be  covered  by  rig  profits.  The  first  phase  of  the  new yard will cost USD150m, rising to USD400m when fully developed. The new  yard  could  hire  up  to  4,000  direct  workers  when  fully  operational. We  are  positive  as:  i)  the  yard  capex  is  backed  by  a  six-rig  order. Assuming a 10% cash margin, 90% of the capex  for the first phase will be covered, ii) we see strong long-term demand for repair and upgrade works  in  the  region,  where  43  rigs  are  now  drilling  in  Mexico,  including
five semisubs and 38 jackup rigs.

- Maintain FY13-15F EPS, SGD12.24 TP and BUY rating. We re-iterate our  BUY  call  on  the  back  of  the  company's strong  earnings  visibility, potential  positive  news  flow  from  more  new  orders,  and  compelling valuation at 12.7x FY14F P/E.

Source: OSK