SINGAPORE (Oct 13): CIMB says Keppel Corp is a safe stock to ride the trough of the offshore & marine cycle as well as the upswing of the local residential property market.
The stock has also underperformed O&M peer Sembcorp Marine by 45% and Singapore’s major developers by 50% year to date.
“We upgrade Keppel from ‘hold’ to ‘add’ with a new SOP target price of $8.58, incorporating a revised RNAV for Keppel Land and Tianjin Eco City, as well as 2x O&M P/BV,” says analyst Lim Siew Khee in a Thursday report.
Lim believes Keppel Land could ride the upcycle competitively, being one of Singapore’s largest landbank owners with 1,624 units, including the potential of Keppel GE Towers redevelopment.
She is valuing Keppel Land’s RNAV at $5.85/share with 20% discount at $4.68.
In addition, Lim says investors have ignored the potential of Sino Singapore Tianjin Eco City as it has about 11 sqkm GFA of residential land which can be developed.
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SSTEC is valued by Lim at $1 billion or $0.58/share.
Furthermore, Keppel Capital is planning to double its AUM from the present $25 billion over the next five years, with secured capital commitments of US$500 million ($677 million) for Alpha DC fund for data centre investments.
This should enable the group to seize opportunities through private funds, as well as create projects for business verticals in the medium term, says Lim.
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In 1H17, Keppel Capital generated $33 million of recurring management fees and is on track to delivering $66-70 million p.a.
“We value the division at $1.2 billion or $0.67/share on 18 times forward earnings,” says Lim.
As for its O&M division, Keppel could fetch US$1.3 billion from divesting its 7 jack-up rigs under construction at a 30% discount.
But Lim believes Keppel is likely to adopt a wait-and-see stance to sell at higher prices as the rig market bottoms or press on to defer deliveries.
Year to date, Keppel has secured higher orders of $1 billion versus SembMarine’s $270 million. The orderbook could grow 20% from FY18 after a four-year decline, while margins could improve due to the leaner operations, adds Lim.
Shares in Keppel Corp are up 22 cents at $7.01.
