SINGAPORE (Dec 18): KGI Securities is maintaining its “buy” call on Keppel Corporation with a target price of $8.67.
According to KGI, the group’s downside may be limited on the back of its 15-year historical low valuations.
In addition, it has a compelling growth story that leverages on synergies between its various businesses. The group will be able to offset the weakness in its offshore and marine (O&M) segment with growth from property and investments.
At the same time, Keppel’s Tianjin Eco-city is finally contributing meaningfully to the group’s overall performance.
Meanwhile, the group’s investment division led by Keppel Capital has grown its AUM to $28 billion following the latest commitment of approximately US$1 billion ($1.35 billion) from investors such as the Canada Pension Plan Investment Board.
“We are convinced that Keppel’s long-term strategy of building new capabilities in production-related projects will bear fruit in the next three to five years,” analyst Joel Ng says in a Friday report.
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The group has been focusing on the whole gas value chain in LNG delivery, where the group also seeks to be co-owner and co-developer.
The analyst believes that this move will help generate long-term recurring income for the group and its partners.
In 9M17, Keppel sold 3,790 residential units worth about $2.0 billion, contributing around 60% to its bottom line. Currently, the group still has 6,000 to 7,000 residential units to be launched per annum in China and Southeast Asia.
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Ng believes that the group’s existing land bank of an average of 62,000 residential units is sufficient for the next 10 years.
The analyst also believes that the group’s track record of unlocking value via divestments may also provide upside to earnings and dividends.
As at 10.40am, shares in Keppel are trading at $7.53 or 1.1 times 2018F book with a dividend yield of 2.9%.
