SINGAPORE (June 30): RHB is maintaining its “buy” call on local conglomerate Keppel Corporation with a lower target price of $7.34 compared to $7.55 previously, after adjusting its discount rate and valuation for Keppel Land, Keppel Capital, and the offshore and marine (O&M) division.
No changes have been made to the research house’s earnings forecasts for the group.
In a Friday report, RHB’s research team estimates the group’s current order book to stand at $3.8 billion following the addition of another $85 million worth of new orders with its recently-announced contract wins.
(See also: Keppel wins 4 contracts worth $85 mil)
It also believes Keppel’s finalised Borr Drilling novation agreement, a three-way agreement to novate the construction contracts of five jack-up rigs originally built for Transocean, should underpin better cash flows and lower the risk of impairment.
Going forward, the team says recurring income from the group’s infrastructure and investment divisions will continue to complement its O&M and property earnings, with the latter remaining a key contributor.
See also: RHB initiates coverage on CSE Global with ‘buy’ call with TP of 58 cents
“Keppel is focusing on expanding its stable recurring income at its infrastructure and investment divisions. These sources of income would complement the earnings that are based on projects at its O&M unit. In FY16, c.40% of its net profit came from a recurring base,” it notes.
“Although O&M contributions remain relatively sluggish, we believe Keppel’s strategy to focus on non-drilling and specialised projects is the right move, as evidenced by its contract wins [in the year to date (YTD)].”
As at 1.02pm, shares of Keppel Corp are trading 3 cents lower at $6.33.
