DBS Equity Research: Wired Daily 9 Mar 2016

kiasutrader

Publish date: Wed, 09 Mar 2016, 03:46 PM

Keppel Corp - Transocean's rig deferment many not result in provisions

Investors await the outcome of the ECB policy meeting outcome tomorrow where expectations are for the central bank to introduce further monetary policy easing. The pullback in the STI yesterday was within our expectation. We maintain our view for the immediate support to be around 2770 and for the index to head towards 2900 over the next few weeks. We also keep our view that the anticipated rise towards 2900 will be different from the past 2 weeks in that gains will be more selective.

Transocean announced that it has reached an agreement with Keppel O&M to defer the delivery of the five jackup orders by up to two years from 2020 onwards. This 3^rd deferment essentially pushes back the delivery of the first of the five jack-ups by up to four years from the original schedule of 1Q 2016 to 1Q 2020. Our analyst believes the talks on further push-back would have been ongoing for quite awhile and Keppel Corp is unlikely to have commenced construction works on these units given typical lead time for a jack-up rig is approximately 24-month. Hence, Keppel is probably not required to make any provision for these jack-ups as contract prices are also intact. The push-back will however, result in slower revenue drawdown and potentially affect the overall efficiency of the yard. Moody'srecent downgrade on several major international drillers - Transocean, Ensco, Rowan, could trigger another wave of rig deferment/cancellations led by credit crunch.

Hiap Seng Engineering Ltdhas been awarded two contracts worth about S$18.3mil for the provision of mechanical works in Singapore. It added that a plant construction project worth S$13.7mil is due to be completed by February 2017, while a plant maintenance work worth S$4.6mil is due for completion this July. The group said it expects a positive contribution to its earnings from the contracts but does not expect any material impact on the NTA or EPS for the current financial year ending March 31, 2016.

Mencast Holdings has entered into a binding term sheet with Stone Marine Overseas and Langham Industries to acquire Stone Marine Singapore. Mencast will pay around S$2.5mil, excluding the aggregate amount of all of Stone Marine's outstanding debt. Stone Marine is involved in the business of manufacturing and repair of marine propellers, associated stern gear and seals

Fabchem China is expected to post a net loss for 4Q2016, the group warned, due to challenging market conditions in China and the temporary suspension of its booster production activities. The group has stopped production of its booster products following an unrelated explosion incident at a production plant in Shandong province in Q4 last year. Its Q4FY16 performance was hampered by this development, since sale of boosters contribute significantly to revenue.

Source: DBS

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Keppel Corp (BN4)Hiap Seng (510)Mencast (5NF)Lincotrade (BFT)

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