KIM ENG - Matching Expectations

♦ Another strong quarter
Keppel Corp recorded another solid quarter: 3Q07 net profit rose 23% Y/Y to S$247.7m, but fell 4% from 2Q07. Turnover grew 31.6% Y/Y and 5.6% Q/Q. 9M07 net earnings of S$757.7m have already exceeded FY06 earnings of S$750.8. The results are broadly within our expectation. Overall margins remained healthy despite some expected decline in EBIT margins in the O&M division due to the usual profit recognition cycles.

♦ O&M remains the revenue leader, while infrastructure still stalled
Offshore and Marine (O&M) continues to be the revenue driver, accounting for 69% of total revenue. However, O&M turnover rose by just 3.8%, possibly indicating that capacity remains tight at the moment, particularly in its Singapore yards. Infrastructure, however, continued to disappoint ?the division posted EBITDA of just S$9.6m, slightly higher than the S$7.1m in 2Q07. Once again, Keppel said that costs associated to legacy projectscontinued to hold back earnings, as well as lower-than-expected profitability of its Keppel Merlimau co-gen plant due to higher natural gas feedstock costs stemming from the breakdown of its original gas supply agreement from Malaysia. However, Keppel remains confident of the division?s prospects, especially given its recent wins in Qatar, Algeria and Australia.

♦ Forex risk issue not endemic to offshore & marine industry
Unsurprisingly, in the wake of SembCorp Marine?s recent forex losses, there were queries about how Keppel manages its forex risks, and the controls that it has in place to manage the risks. Keppel responded that itsstrategic business units (SBUs) do not enter into forex contracts with banks without approval and control at the group level. In other words, forex contracts are transacted by the group treasury on behalf of the SBUs. Furthermore, whatever unhedged forex futures are reported by the SBUs and then reported to the board every month. We would like to reiterate that the recent problem that SMM experienced is not endemic to the offshore and marine industry as a whole, and is likely a risk that has to be managed by any company that has foreign currency exposure.

♦ Upping target price to S$15.60
Keppel?s O&M division will be the mainstay of the company for the foreseeable future, with its net order book at some S$11.1bn. All other divisions, with the exception of Infrastructure, continue to show healthy growth within their business segments. We are leaving our forward forecast unchanged, where we expect Keppel to post FY07 net earnings of S$1,102.5m. However, we are also adjusting our sum-of-the-parts fair value for Keppel to S$15.60 from S$15.00 previously, to reflect our new target price of S$11.45 for Keppel Land, as well as SPC?s price appreciation in the wake of record oil prices and progress in its upstream business. Reiterate BUY.

Keppel Corporation Limited announced that Keppel Nantong Shipyard Co. Ltd, the wholly-owned subsidiary of Keppel Offshore & Marine Led has clinched three contracts worth a total of S$110 million (RMB$550 million), including owner furnished equipment, to build eight tugs.

UBS

Credit Suisse - BUY

TP - S$15.00

All big analysts are calling for BUY. So we should be expecting more upside on this counter than is happening now.

Interim Dividend of $0.09 per share comprising of the following:-
        

 

(i) $0.015 franked dividend per share less 18% tax
        

 

(ii) $0.075 dividend per share tax exempt (one-tier)

1
                

 

Cum-Dividend period
                

 

27 July 2007 to 7 August 2007
                

 

2
                

 

Ex- Dividend  period
                

 

8 August 2007 to 13 August 2007
                

 

3
                

 

Record Date
                

 

13 August 2007 (5.00 p.m.)
                

 

4
                

 

Last day for Buying-In on a Cum basis unless extended by the Exchange
                

 

14 August 2007

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Shares are good for delivery for sales on a Cum basis in the Buying-In Market if the shares are purchased on or before
                

 

7 August 2007
                

 

6
                

 

Date Payable (for Dividend only)
                

 

22 August 2007
                

 

UOB KH - BUY

TP - S$15.20

Our FY07 net profit forecast remains at S$1.060b while our FY08 and FY09 forecasts have been raised by 2% and 15% respectively to S$1.300b and S$1.475b respectively on higher O&M and property earnings. We raise our target price by 22% from S$12.50 to S$15.20 based on our revised sum-of-theparts (SOP) valuation of S$15.18/share on the back of higher valuations for the O&M and property businesses.

Keppel Corp (S$13.80) - 2QFY07 results - Offshore & Marine rewarding, Infrastructure disappointing

2Q07 earnings rose 32% yoy to S$258.4m in line with our expectations and consensus. Revenue rose 49% to S$2.5bn driven by Offshore & Marine and Property  divisions. Infrastructure was below expectations due to cost -overrun by some legacy projects in KIE division. We have downgraded our earnings for FY07 by 2% to reflect slower growth in Infrastructure division but revised upward our FY08-09 earnings by 3- 4% to account for stronger order book recognition in O&M division. Target raised to S$15.40 from S$ 14.60, based on sum-of-the-parts. Potential catalysts include new projects from infrastructure, launching of subsequent phase of Keppel Bay and megasized contract wins in O&M including P-56 in Q3. Maintain Outperform.