BUY (maintained)
FAIR VALUE: S$10.67
LAST CLOSE: S$8.78
(Previous S$10.13)
Keppel reported net profit of $406.1 million for 3Q2011, a 33.3% increase over the corresponding period last year. This was above market consensus of about $355.5 million. Higher profits came from its Offshore and Marine (O&M) and Property divisions. Revenue was up 18% to S$2.7 billion.
For the first nine months, Keppel’s net profit surpassed the billion dollar mark reaching S$1.12 billion, 15% higher than the corresponding period. Revenue was up 4% to S$7.28 billion.
We expect Keppel to see strong contribution from its offshore and marine division given its strong order books secured. To date, the division secured $8.7 billion worth of new orders . The demand for deep sea exploration will also create additional works and contracts for Keppel.
On the property front, Keppel should also see profit contribution from its Keppel Bay development and also from China and Vietnam projects. Its prime office portfolio in Ocean Financial Centre and Marina Bay Financial Centre still enjoy healthy demand.
For its infrastructure division, KIE involvement in the water reclamation project in the Tianjin Eco City development should also reap longer term benefits for the group. The expansion of the Keppel Merlimau cogen project will also be a booster to the group bottomline when completed in 2013.
We are revising upward our profit forecast to $1.44 billion from $1.3 billion for FY2011 and to S$1.52 billion for FY2012. On PE valuation, the stock is trading at reasonable 10.9x (2011) and 10.3x (2012) which is below the sector PE of about 15x.
We have raised our fair valuation for Keppel to S$10.67 from $10.13 (based on the sum of parts valuation). We maintain our Buy recommendation for Keppel.
Results Review
Keppel achieved a 33.3% rise in net profit of $406.1 million for the 3Q 2011 which was above the $355.5 million estimated by analysts. For the first nine months, profits was up 15.4% to $1.12 billion. Earnings per share was 22.8 cents.
Group revenue in 3Q2011 of $2,702.1 million was 18.1% above that of the corresponding period in 2010 of $2,287.3 million due to higher revenue from the Offshore & Marine (O&M), Property and Infrastructure divisions .
At the operating level, Group 3Q profit of $524.3 million was 42.4% above that of the corresponding quarter in 2010. Operating margins improved to 19.4% from 16.1% due mainly to higher margins from its offshore and marine division.
Going Forward
Offshore & Marine Division secured $8.7 billion of new orders to date. The net order book stands at $9 billion with deliveries into 2014. The strong momentum in order flows was supported by strong utilisation and day-rates for high-specification jackups as well as increases in exploration and production budgets. There are also good demand for deepwater exploration in the next few years.
In the Infrastructure Division, expansion of the Keppel Merlimau cogen power plant from 500MW to 1,300MW is progressing and on schedule for completion by 2013. The rising global focus on sustainable urbanisation will translate into demand for solutions in clean water and waste management. Keppel Integrated Engineering has also entered into a joint venture to build, own and operate a water reclamation plant in Tianjin Eco-City.
Keppel T&T also expects growth in Asia to drive demand for logistics and data centres, and will focus on providing integrated logistics services in selected regional markets and building a portfolio of high quality data centre assets.
Keppel Land has launched its residential site in Sengkang with good takeup. In China, Keppel Land China has acquired a prime residential site in Wuxi for the development of about 2,500 apartments. The Group’s portfolio of prime office buildings in Ocean Financial Centre and Marina Bay Financial Centre Phase 2 still enjoys healthy demand.
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