Analysts from PhillipCapital and UOB Kay Hian have kept their ‘buy’ calls on Keppel Corp with unchanged target prices of $6.12 and $6.37 respectively after the company announced it will be recognising an impairment loss of $318 million with respect to its exposure to KrisEnergy.
See: Keppel Corp to recognise impairment loss of $318 mil in 1H21 on exposure to KrisEnergy
The analysts from both brokerages highlight that the impairment is not expected to have an impact on Keppel’s FY2021 ending December final dividend, as Keppel has stated that it will ringfence the impairment loss.
PhillipCapital’s Terence Chua notes that Keppel has a comprehensive first ranking security package over the assets of the KrisEnergy group and is implementing plans to maximise recoveries.
Given the impairment, Chua has lowered his FY2021 profit forecast by 37% to $424 million.
Nevertheless, he remains positive on the group’s prospects for this year and expects Keppel to speed up the divestment of its non-core assets. “Keppel has identified $17.5 billion of assets for monetisation, specifically $3-5 billion within three years,” he points out. Keppel has already divested $1.2 billion of assets, realising a gain of some $120 million.
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Besides noting that Keppel Offshore & Marine’s (Keppel O&M) orderbook has doubled to $6 billion, Chua also says that Keppel O&M's restructuring, including the successful divestment of its rig building business, is a potential catalyst for Keppel.
Meanwhile, UOB Kay Hian analyst Adrian Loh says the key issue over the next year will be whether KrisEnergy’s upstream assets will be successfully sold as the company winds up. “With the bulk of these being exploration assets, our channel checks indicate that the sale process will be challenging,” he notes.
On the impairment amount of $318 million, Loh notes that some of this should be offset by Keppel’s previously-announced $187 million gain arising from the sale of its stake in Floatel.
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Similar to Chua, Loh has reduced his FY2021 earnings forecast, lowering it by 19% to $435 million. Nevertheless, his target price remains unchanged at $6.37 as it is based on target P/B multiples for Keppel’s various business segments.
Looking ahead, Loh expects better newsflow from Keppel in the coming months. “Going forward, Keppel’s China property segment should see better sales volume on a y-o-y basis given the low base in 1H2020,” he says.
“In addition, its infrastructure segment will have a full half-year of contribution in 1H2021 from the Marina East desalination plant which started operations in Jue 2020, while potential upside may come from Keppel building upon the recent order win for a US$2.3 billion [floating production, storage and offloading vessel] from Petrobras in May,” he adds.
As at 4.52pm, shares in Keppel are 7 cents or 11,32% lower a $5.22.
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