SINGAPORE (Apr 3): CIMB is maintaining Keppel Corp at "add" with unchanged target price of $10.00 on recognition of $270 million in divestment gain for 1Q18.
"We expect 1Q18 ended March earnings to be supported by the gain. O&M may reach almost breakeven without kitchen-sinking provisions," says analyst Lim Siew Khee in a Monday report.
Last October, Keppel Land China announced the divestment of 100% stake in Keppel China Marina Holdings for RMB2.9 billion ($590 million) to Delight Prime. However, the completion was delayed due to objections by a minority shareholder, Sunsea Yacht Club (Hong Kong).
See: Keppel Land China sells stake in Keppel Cove in Zhongshan for $597.4 mil
See: Keppel hit by lawsuit to restrain sale of stake in Zhongshan Keppel Cove development
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Keppel China Marina indirectly owns 80% in Sunsea Yacht Club (Zhongshan) which owns and is developing Keppel Cove, a residential and marina development on MoDao Island, Zhongshan City.
The development comprised land area of 891,752 sqm with Phase 1 of 42 villas, a club house and an 82-berth marina completed last March.
"We are pleased with the outcome and see this as a major milestone in unlocking capital within the property division," says Lim.
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With the appreciation of RMB, CIMB expects a gain of $270 million to be recognised in 1Q18. Keppel will report its 1Q18 results on Apr 19.
"We expect earnings to be supported by the above-mentioned gain," says Lim.
Meanwhile, Keppel's O&M division should turn in better q-o-q performance without $140 million of provisions.
While yard utilisation may still be lacklustre in 1Q18, there is a possibility of O&M achieving breakeven on the back of leaner operations as sub-optimal yards were substantially closed down in 4Q17.
Keppel's investment division may see q-o-q profit compared to 4Q17 where there was no major land sale in Tianjin Eco-City and recognition of losses of KrisEnergy.
Catalysts ahead include a successful sale of delayed rigs to unlock working capital and higher dividend potential from more asset recycling in the property divisions, adds the analyst.
As at 12.19pm, Keppel is trading at $7.68 or 1.2 times FY18 book value, which is "cheap" compared to the 20-year average of 1.7 times, according to CIMB.
