(BUY, S$7.94, TP S$11.03)
Small order wins; maintain BUY. Keppel has secured three contracts for conversion works with a total value of S$142m. Latest contract wins lifted YTD order wins to S$7.9b and outstanding order book to S$9.64b. We maintain our FY11-13F EPS estimates and SOTPderived TP of S$11.03. Keppel Corp currently trades at 10x FY12F P/E and 1.9x FY11F P/B. We remain positive on the stock: (1) we are comfortable with our prospective EPS estimates given high outstanding order book; (2) Petrobras could spring a surprise by finally awarding the remaining newbuild contracts for 21 deepwater rigs by end of this year. The orders are largely ignored by the market given persistent delays. Maintain BUY.
All three contracts to complete in 2012: (1) The first contract is for a fast-track conversion of a
LNG carrier, Tenaga Empat, into a Floating Storage Unit (FSU) for MISC Berhad. The FSU will operate in the Melaka LNG Import Terminal and the project is expected to complete in 2Q12. (2) The second contract is for the modification and upgrading of the FSO Massongo for Dixstone Holding. Work on the project will start in 4Q11 and complete by 3Q12. (3) The third project is the conversion of the tanker Umbe into a FPSO unit for Bumi Armada. The conversion is the seventh major project undertaken by Keppel for Bumi Armada. Work on the project is expected to complete in 4Q12.
Valuation: SOTP-derived TP of S$11.03. Keppel Corp currently trades at 10x FY12F P/E and 1.9x FY11F P/B. Historically, the stock traded at a low of 4x forward P/E during the global financial crisis and a peak of 22x in the last rig newbuild upcycle. We see favourable risk reward at this price but expect the stock to remain volatile due to market concerns on the European debt crisis.
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