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Simons Trading Research

Author: simonsg   |   Latest post: Fri, 16 Aug 2019, 5:27 PM

 

Keppel Corporation - Weak 2Q19 Y-o-y Profit, Optimistic Outlook; BUY

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  • Maintain BUY with new SGD7.30 Target Price from SGD7.33, 11% upside, plus 4% yield.
  • 2Q19 results slightly missed, with 1H19 net profit of SGD356m representing 37% of our 2019F pre-results. However, we believe the property division could see stronger numbers in 2H19 – we are encouraged by the early-July strong sales at Seasons Residences.

Property Division Recorded 2Q19 PBT -38% YoY

  • Property division recorded 2Q19 PBT -38% y-o-y to SGD161m, due mainly to the absence of gains from en-bloc sales of development projects vs 2Q18. This came on the back of property division 2Q19 revenue rising 11% y-o-y, mainly due to higher revenue from China trading projects such as Waterfront Residences in Wuxi, and Serenity Villa in Chengdu.

Offshore & -21% Y-o-y

  • Offshore & Marine jackup rigs to Borr Drilling vs 2Q18. However, the O&M division recorded 2Q19 pre-tax profit of SGD4m, an improvement vs 2Q18’s SGD11m pre-tax loss.

Outlook Is Positive

  • Keppel O&M secured YTD new contracts of SGD1 launched 193 homes at Seasons Residences Phase 3 in Tianjin Eco-City, and all units were sold within a day – these sales were not included in 1H19 numbers. However, due to the weak 1H19 earnings, we lower FY19F recurring net profit by 8%.

Valuation – Diversified Asset Structure With Huge Value Unlocking Potential

  • The Board approved 8/share.
  • As Keppel Corp (SGX:BN4) has multiple businesses with exposure in different industries, we took the SOP methodology to value it, and arrived at Target Price of SGD7.30 based on
    • O&M division valued at 1BV of Sembcorp Marine (SGX:S51) (Target Price: SGD1.99, see report: Sembcorp Marine - O&M Pure Play; Reiterate BUY); 
    • division valued conservatively at 10x FY19F P/E;
    • division valued at 40% discount to RNAV – close to the average discount to RNAV applied for China; and
    • division, which includes Keppel M1 Ltd.

Source: RHB Invest Research - 19 Jul 2019

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