Published October 3, 2008

Keppel wins two deals worth $150m

Both ship conversion contracts from repeat customers

By NISHA RAMCHANDANI
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KEPPEL Shipyard, a wholly owned subsidiary of Keppel Offshore & Marine, has landed contracts totalling $150 million from repeat customers for the upgrading, modification and conversion of two vessels.

The contracts are not expected to materially impact Keppel's FY2008 NTA and EPS.

Single Buoy Moorings Inc (SBM) has engaged Keppel Shipyard for the conversion of a tanker into a floating production, storage and offloading vessel (FPSO), which would make it the tenth FPSO conversion project undertaken by Keppel Shipyard for SBM since 2000. The second contract, from Golar LNG, will involve the conversion of a membrane liquefied natural gas carrier into a floating, storage, re-gasification unit (FSRU). This is Keppel Shipyard's second such project for Golar LNG.

'We are pleased to again be entrusted with new projects from owners who have worked with us before. We will continue to strengthen our partnership, providing safe and high quality services, especially in the current tight market conditions,' said Nelson Yeo, executive director of Keppel Shipyard.

Work on the vessels is expected to commence this month but the contracts are not expected to have a material impact on the net tangible assets and earnings per share of Keppel Corp for FY2008.

In a research note, Kim Eng Research said yesterday that it is downgrading its recommendation on Keppel Corp to a hold and cutting its price target to $7.65, as the tightening credit market is expected to put the squeeze on the overall offshore and marine sector.

'While Keppel's Offshore and Marine earnings are expected to be solid for the next 18 months on its current orderbook, we are concerned that its order flow will start to dry up,' Kim Eng analyst Rohan Suppiah said in the note. 'Drillers may be faced with little choice but to defer newbuilds as banks may be unwilling to continue to finance a business that is highly capital intensive and risky in nature.'

In addition, Keppel has an 80 per cent stake in subsidiary Keppel T&T, whose share price dropped 70 per cent over the last week on the back of sales by its second largest shareholder. Kim Eng estimated that the selldown wiped out 86 cents per share from Keppel's value.

Keppel also holds 70 per cent of the Reflections at Keppel Bay property project, where 'recent transaction flows have not been encouraging, with just six units sold in August'. The research report said that 'there are still 500 units left unsold'. Heavy construction costs are also expected to limit profitability.

Keppel closed 13 cents lower at $7.72 yesterday.