Keppel Corporation by yaofenjin

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									                                                                                                             Phillip Securities Research Pte Ltd
Keppel Corporation                                                                                                                4 October 2011
 Market                 Singapore Stock Exchange                                                                                     Closing Price
 Sector                             Conglomerate       Hold (Maintained)                                                                   S$7.47
 Reuters                                 KPLM.SI
 Bloomberg                                KEP SP                                                                                      Target Price
 POEMS                                  KEPS.SG                                                                                  S$8.50(+13.8%)
 Price                                                 •   Secures US$199 mil jackup rig order from Safin Gulf FZCO.
 Last Price                                   7.470
                                                       •   Lowering our expectations on future rig order wins.
  52w k High (4/28/2011)                      12.18
  52w k Low (10/3/2011)                        7.36    •   Maintain Hold with fair value lowered to $8.50.
 Shares Outstanding (mil)                  1782.658
                                                       Another B class in the bag
 Market Cap (S$ mil)                       13316.46
                                                       Keppel Corp announced last evening that it has secured a US$199 mil. order for a KFELS B
 Avg. Daily Turnover (mil)                    70.87
                                                       Class jack up rig from Safin Gulf FZCO. The rig is scheduled for delivery in 3Q2012 and will be
 Free float (%)                               78.03    a refurbishment and upgrade of a KFELS B class rig that Keppel FELS purchased earlier in the
 PE (X)                                        7.84    year. We also understand from Keppel that the rig was purchased from an undisclosed party in
 PB (X)                                        1.94    the secondary market earlier this year. The buyer, Safin Gulf FZCO is part of privately owned
                                                       Safin GmbH which is among the 10 largest independent steel trading and distribution
 Price perform ance %                                  companies in the world. This will be the first rig to be owned by Safin Gulf FZCO.
                 1M       3M                    6M
 Absolute    -16.3%   -33.2%                -33.7%     Lowering our expectations
 Relative     -8.6%   -16.7%                -17.7%     While we are encouraged by the order win, we note that the pace of new rig orders have
                                                       slowed significantly since 1H2011.We believe that this is due to the current economic
   14              kep sp            STI (rebased)     uncertainty as well as the growing number of rig orders in the pipeline (for delivery by end
   13
                                                       2013/early 2014) which has resulted in a more cautious ordering stance among drilling
                                                       operators and speculators. We also think that there is a high chance that this rig order win was
   12
                                                       secured mainly due to its early delivery date of 3Q2012 versus late 2013/early 2014 for new
   11                                                  rigs being ordered now. Therefore, we cannot take this order win as a good indication that
   10                                                  sentiments are still as upbeat.
   9
                                                       Perhaps another indication of the current sentiment among buyers will be the rate of exercise
   8                                                   of rig options granted to buyers earlier on. We learn from the company that it now has five
    7                                                  options outstanding after some expired recently. We estimate that four options were expired
    6
                                                       and they were likely from Discovery Offshore (2 options), Asia Offshore Drilling (1 option) and
   03-Oct-   03-Jan-   03-Apr-   03-Jul-    03-Oct -   Dynamic Offshore (1 option). The expiry of these options lends further support that sentiments
      10       11         11       11          11      have indeed weakened.

 Major Shareholders                             %
 1 Temasek Holdings                            21.39            Conso'  Profits   EPS           DPS     BV       ROE     P/E Yield     P/BV
 2 Fidelity International                      2.15             Ending SGD(mill) SG (¢)        SG (¢) SG ($)     (%)      (X) (%)       (X)
 3 Blackrock Fund Advisors                     1.43
Source: Bloomberg                                               12/08A  1,097      62            32    2.89       22     12.0 4.3       2.6
                                                                12/09A  1,265      72            55    3.75       24     10.4 7.4       2.0
Analyst                                                         12/10A  1,419      80            38    4.20       22      9.3 5.1       1.8
Nicholas Low, CFA                                               12/11E  1,313      74            37    4.11       19     10.1 4.9       1.8
    65 6531 1535
FAX 65 6536 4435                                                12/12E  1,313      73            37    4.56       17     10.2 4.9       1.6
   nicholaslowkc@phillip.com.sg
Web: www.poems.com.sg


MICA (P) 004/01/2011
Ref No: SG2011_0274
Keppel Corporation Limited                                                                                4 October 2011

                             Fig 1. Rig Options
                                                                    Unexpired Options
                                                                                      Estimated value
                              Date granted         Type        Rig Class     Units                       Customer
                                                                                         (US$'mil)
                                                 Jack up     SUPER B CLASS
                                17-Feb-11                                      2           390          TRANSOCEAN
                                                               BIGFOOT
                                15-Feb-11        Jack up         CJ 70         1           500           MAERSK
                                10-Feb-11        Jack up        SUPER A        2           440           ENSCO
                                                                      Expired Options
                                                                                      Estimated value
                              Date granted         Type        Rig Class     Units                       Customer
                                                                                         (US$'mil)
                                27-Jan-11        Jack up        SUPER A        2           416          DISCOVERY
                                 2-Dec-10        Jack up        B CLASS        1           180             AOD
                                23-May-11        Jack up        B CLASS        1           180           DYNAMIC
                             Source:Company, PSR estimates


                             Maintain Hold with fair value of $8.50
                             Keppel Corp share price has fallen 38% since our last report, in tandem with weak market
                             conditions. Although we lower our expectations on future rig order wins due to the worsening
                             macroeconomic conditions, we believe that this might already been amply reflected in Keppel’s
                             share price performance and unless the macroeconomic situation deteriorates further, lower
                             prices should not be warranted. We also think that Keppel’s strong orderbook and good
                             dividend yield (approx. 5%) will provide support to its share price at current levels. Thus, we
                             maintain our HOLD recommendation with a lower fair value of S$8.50.At our target price of
                             S$8.50, Keppel will be trading at approximately 12x FY12e EPS, in-line with its historical
                             average valuation.




                                                      2
Keppel Corporation Limited                                                                                                                      4 October 2011


Financials
Income Statement                                                                               Balance Sheet
                                             2008A 2009A 2010A 2011E 2012E                                                    2008A 2009A 2010A 2011E 2012E
S$millions,yr end Dec                                                                          S$millions,yr end Dec
Revenues                                     11,805 12,247 9,783         9,476        11,681   Cash and cash equivalents      2,245 2,936 4,246 4,111           5,218
 Materials and subcontract costs             (8,828) (8,809) (6,211) (6,041) (7,488)           Inventories                    3,217 3,178 4,441 4,730           4,471
 Staff costs                                 (1,329) (1,372) (1,367) (1,318) (1,647)           Accounts receivables           1,971 1,727 1,959 1,831           2,705
 Depreciation and amortization               (139)     (174)   (189)     (195)        (222)    Others                          657      744     842     865      871
 Other operating expenses                    (270)     (387)   (260)     (249)        (312)    Current assets                 8,090 8,586 11,488 11,537 13,265
Operating Profit                             1,238     1,505   1,756     1,673        2,012    Fixed assets                   1,873 2,157 2,243 2,639           2,908
 Net interest                                  4        29       55       15           18      Investment properties          3,030 3,051 3,208 3,516           3,855
 Share of results of associates               354      468      485       321          (3)     Associated companies           3,201 2,723 3,607 3,878           3,950
 Exceptionals                                  13      322      661        0            0      Other long-term assets          553      790     436     632      608
PBT                                          1,609     2,178   2,687     1,879        2,231    Total Assets                   16,746 17,307 20,981 22,202 24,587
Taxation                                     (288)     (348)   (581)     (319)        (379)    Payables                       3,940 4,052 4,343 5,133           5,992
 Minority interests                          (223)     (205)   (484)     (246)        (539)    Short-term borrowings           198      839     392     527      850
Net income (reported)                        1,098     1,625   1,623     1,313        1,313    Other current liabilities      3,735 2,373 2,388 2,304           3,165
Net income (recurring)                       1,097     1,265   1,419     1,313        1,313    Total current liabilities      7,872 7,264 7,123 7,964 10,007
EBITDA                                       1,378     1,679   1,945     1,868        2,234    Long-term borrowings           1,745     918     3,676 3,249     2,399
                                                                                               Other long term liabilities     381      412     459     459      459
Growth and margins (%)                       2008A 2009A 2010A 2011E 2012E                     Total liabilities              9,998 8,594 11,258 11,672 12,865
Revenue growth                                13.2      3.7    (20.1)    (3.1)         23.3    Shareholders' equity           6,749 8,713 9,724 10,530 11,722
Operating profit growth                       17.9     21.5     16.7     (4.7)         20.2    Total Liabilities and equity   16,746 17,307 20,981 22,202 24,587
EBITDA growth                                 17.1     21.9     15.8     (4.0)         19.6    Per share data (cts)           2008A 2009A 2010A 2011E 2012E
Net Profit growth (reported)                  (2.9)    48.0     (0.1)    (19.1)       (0.1)    EPS (reported)                   63      93       92      74      73
Net Profit growth (recurring)                 6.9      15.3     12.2     (7.5)        (0.1)    EPS (recurring)                  62      72       80      74      73
Operating margin                              10.5     12.3     18.0     17.7          17.2    DPS                              32      55       38      37      37
EBITDA margin                                 11.7     13.7     19.9     19.7          19.1    BVPS                            289      375     420     411      456
Net profit margin (reported)                  9.3      13.3     16.6     13.9          11.2    NTAPS                           284      370     413     405      450
Net profit margin (recurring)                 9.3      10.3     14.5     13.9          11.2    CashPS                          128      167     240     231      292
                                                                                               FCF to equity per share          96      73      105      27      92
Cash flow in S$millions                      2008A 2009A 2010A 2011E 2012E
Operating profit                             1,238     1,505   1,756     1,673        2,012    Key ratios                     2008A 2009A 2010A 2011E 2012E
Depreciation and amortisation                 139      174      189       195          222     ROE (%)                         22.4    23.9     22.3    18.7    17.0
Adjustments                                    18       29       44        0            0      ROA (%)                         6.7      7.4      7.4    6.1      5.6
Operating profit before WC changes           1,396     1,709   1,989     1,868        2,234    Payout ratio (%)                50.9    77.0     47.7    50.0    50.0
WC changes                                    852      (910)   (1,302)    327         1,123    Effective tax rate (%)          17.9    16.0     21.6    17.0    17.0
Other non-cash items                         (201)     (128)   (238)     (316)        (367)    Net Debt/ Equity (%)            (4.5)   (13.5)   (1.8)   (3.2)   (16.8)
Net Operating CF                             2,047     670      450      1,879        2,989    Net Debt/Equity (%) ex MI       (6.6)   (19.7)   (2.6)   (4.6)   (24.2)
Capex                                        (400)     (476)   (873)     (909)        (839)    Debt/Equity (%)                 28.8    20.2     41.8    35.9    27.7
Others                                        228      903      230      (59)          143     Current ratio (x)               1.0      1.2      1.6    1.4      1.3
Net Investing CF                             (171)     427     (643)     (968)        (695)    Quick ratio(x)                  0.6      0.7      1.0    0.9      0.9
Equity raised/(repaid)                         34       8        74       60           50      Average receivable days          58      55       69      73      71
Debt raised/(repaid)                         (288)     (235)   2,300     (293)        (527)    Average payable days            108      119     157     183      174
Others                                         96      419     (242)     (139)        (122)    Average inventories days        136      132     158     269      278
Dividends paid                               (1,098)   (574)   (627)     (674)        (588)    Valuation                      2008A 2009A 2010A 2011E 2012E
Net Financing CF                             (1,256)   (380)   1,504 (1,046) (1,187)           P/E (x)-reported                 12       8       8       10      10
Beginning cash                               1,597     2,217   2,934     4,246        4,111    P/E (x)-recurring                12      10       9       10      10
Net change in cash                            620      717     1,311     (135)        1,107    Dividend yield (%)              4.3      7.4      5.1    4.9      4.9
Ending cash                                  2,217     2,934   4,245     4,111        5,218    Price/Book(x)                   2.6      2.0      1.8    1.8      1.6
FCF to equity                                1,684     1,282   1,865      479         1,645    Price/NTA (x)                   2.6      2.0      1.8    1.8      1.7
Source:Company,Phillip Securities Research




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Keppel Corporation Limited                                                                                          4 October 2011


                             Ratings History
                             Keppel Corporation Limited
                                                             Previous
                                                                           Fair
                              Rating   Date                  Closing                       Remarks
                                                                           value (S$)
                                                             price (S$)
                              HOLD     4 October 2011           7.47           8.50        Update
                              HOLD     8 August 2011           10.30          12.16        Update
                              HOLD     22 July 2011            10.82          12.16        Results
                              HOLD     14 June 2011            11.06          10.84        Update (Change of analyst)
                              BUY      17 February 2011        11.58          13.40        Update
                              BUY      26 January 2011         11.34          13.40        Results
                              BUY      6 December 2010         10.82          12.52        Initiate Coverage

                                                  TRADING BUY        Share price may exceed 10% on the upside over the next 3
                                                                     months, however longer-term outlook remains uncertain
                                                  BUY                >15% upside from the current price
                                                  HOLD               -10% to 15% from the current price
                                                  SELL               >10% downside from the current price
                              Phillip Research    TRADING            Share price may exceed 10% on the downside over the next 3
                              Stock Selection     SELL               months, however longer-term outlook remains uncertain
                                  Systems
                                                 We do not base our recommendations entirely on the above quantitative return
                                                 bands. We consider qualitative factors like (but not limited to) a stock's risk reward
                                                 profile, market sentiment, recent rate of share price appreciation, presence or
                                                 absence of stock price catalysts, and speculative undertones surrounding the
                                                 stock, before making our final recommendation




                                                    4
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Research
Chan Wai Chee                  Lee Kok Joo, CFA                 Joshua Tan                    Magdalene Choong                   Go Choon Koay Bryan
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Derrick Heng                   Nicholas Low, CFA                Travis Seah
Investment Analyst             Investment Analyst               Investment Analyst
Transportation                 Offshore & Marine                REITS
+65 6531-1221                  +65 6531-1535                    +65 6531 1229
derrickhengch@phillip.com.sg   nicholaslowkc@phillip.com.sg     travisseahhk@phillip.com.sg




                                                                             6
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Phillip Securities Pte Ltd                                    Phillip Capital Management Sdn Bhd
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UNITED KINGDOM                                                UNITED STATES
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Fax (613) 96148309
Website: www.phillipcapital.com.au




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