PhillipCapital analyst Paul Chew has maintained his “buy” call on Keppel Corporation BN4 with an unchanged target price of $9.54 a day after Sembcorp Marine’s (SembMarine) shareholders voted overwhelmingly in favour of the proposed combination between the group and Keppel Corporation’s offshore and marine (O&M) arm, Keppel O&M.
At its extraordinary general meeting (EGM) on Feb 16, SembMarine’s shareholders holding some 95.3% of shares within the group voted in favour of the merger.
The completion of the restructuring of Keppel O&M is expected to take place on or before Feb 28.
“We see the divestment of Keppel O&M, along with the divestment of Asset Co (previously approved by Keppel shareholders) as an important milestone for the group as it continues its journey toward an asset-light model,” says Chew in his Feb 17 report.
“We believe the attention will now shift towards the group’s transformation of its Urban Development business. We believe the group will pivot towards real estate-as-a-service solutions by having an asset-light model and one focused on strengthening its recurring income (67% of FY2022 earnings),” he adds.
In the analyst’s view, market sentiments are improving for Keppel’s Urban Development business despite its weaker performance in 2022. This is following the relaxation of Covid-19-related restrictions.
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Enlarged entity ‘better equipped’ to compete against better-resourced players
The way Chew sees it, the newly-enlarged entity, which Keppel will hold a 5% stake in, will be “better equipped” to compete against better-resourced players from South Korea and China.
The crediting of Keppel O&M consideration shares to Keppel shareholders is expected to be done on March 1.
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At the record date of Feb 24, Keppel shareholders will receive new SembMarine shares representing 49% of the entity’s enlarged share capital. This is estimated to be 19.1 SembMarine shares per Keppel share with an implied value of $2.33.
“On a pro forma basis, had the proposed O&M transaction been completed at end-FY2022, Keppel would have booked pro forma disposal gains of $1.94 per Keppel share on SembMarine shares received,” Chew notes.
“Following the distribution of Keppel O&M shares, on the same pro forma basis, Keppel’s pro forma net tangible asset (NTA)/share would be $5.23,” he adds. “Our target price ex-distribution is $6.41.”
On his unchanged target price, Chew says there is room for a further reduction in the Holdco discount he applies to the group over time as it accelerates its transformation into an integrated asset-light business.
“We will review the discount we apply to the group as the group continues its transformation,” he says.
Shares in Keppel Corp closed 14 cents higher or 1.96% up at $7.27 on Feb 17.
