BUY S$7.47 STI : 2,621.40
Price Target : 12-month S$ 10.38
Keppel FELS has secured a contract for its high-specification KFELS B Class rig from Safin Gulf FZCO (Safin) worth US$199m.
The rig is on a fast track delivery till 3Q12, as it involves the refurbishment and upgrade of a KFELS B Class jack-up rig that Keppel FELS purchased earlier this year. The high-specification KFELS B Class rig will be installed a full 15,000 psi BOP system, 70-feet cantilever outreach, with upgraded mud pit storage capacity of 4,000 bbls and be able to accommodate up to 150 personnel.
Earnings will be recognised in FY12, raising visibility to c.70% in terms of coverage for FY12's revenue. This order will raise KEP’s FY11 YTD order wins to S$8.3bn, accounting for 92% of our forecast contract wins of S$9b for this year, book to bill estimated at a healthier 2x vs SMM's low book to bill of 1.5x.
Keppel Corp has been able to secure offshore contracts in the past few months, albeit at a slower pace vs 1H11. This jack up contract comes in the midst of macro uncertainties, indicating strong underlying demand for high spec jack ups. However, order flows could slow, in the face of weakening oil prices, risk of recession, and a potential credit crunch caused by financial dislocation in Europe which could deter capex commitment for such orders.
No change to our earnings forecasts or base case TP of $10.38. The stock has been sold down to our recession TP of $7.42, which pegged O&M earnings PE at 8.7x and Kepland’s TP at $1.82. While valuation is undemanding, dividend yield at 5.4%, the stock remains vulnerable to a) weakening oil price – dropped 10% over the past month to US$76/b(WTI) b) possible financial dislocation which will defer order flows in the event of a credit crunch. Using GFC valuation parameters, its crisis level TP is S$5.40 which implies O&M earnings at 5x PE and Kepland TP at S$1.32.
No comments:
Post a Comment