Why has the Keppel share price plunged nearly 30%?

Keppel Corporation’s share price went sub-S$5 this week, with oil prices crashing to an 18-year low on the back of an oil price war and lower global demand driven by the coronavirus.

Share price of Singapore offshore and marine conglomerate Keppel Corporation plunged to a four-year low on Thursday 19 March.

The oil and marine group saw its market value decline as much as 8.4% this week to S$4.82 per share – its lowest level since February 2016.

Since late-January this year – around the time the coronavirus outbreak began to worsen in Singapore, Keppel has seen its share price erased by almost 30%.

An ongoing oil price disagreement between Saudi Arabia and Russia that began two weeks ago also intensified Keppel’s price rout, with oil prices falling further to an 18-year low of US$20 per barrel on 19 March.

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Share price rout not unique to Keppel

The share price collapse is not unique to Keppel, as evident by the hefty losses also experienced by other Singapore blue-chip listings on the Straits Times Index in the last two months.

Singapore’s three biggest banks, namely DBS Group, OCBC and UOB, also saw their share prices retreat by over a quarter each.

Telecommunications provider Singtel – the second largest company in Singapore by market cap, sunk to an 11-year low last Friday 13 March, and continues to extend losses this week.

Singapore real estate investment trusts, a favourite among investors historically for their solid business outlooks and reasonable buy-in rates, have also lost big in the last two months, thanks to global coronavirus-inspired risk-off sentiments.

Since 05 March, Ascendas REIT, Mapletree Commercial Trust, Mapletree Industrial Trust and CapitaLand Mall Trust have all fallen by 27.24%, 24.8%, 35.4% and 32.8% respectively.

Keppel’s real estate subsidiaries – Keppel REIT and Keppel DC REIT – have also each accumulated share price losses of over 30%.

The Straits Times Index, which tracks the stock performance of all these listings, is down an unprecedented 28.8% since January 2020 – a level of volatility rarely experienced by the index. In 2019, the benchmark’s maximum fluctuation rate was 9.5%.

Read also: Top 9 billion-dollar SGX stocks and shares based on fundamentals

Analysts rate Keppel's shares a 'buy' as they cut earnings forecast by 13%

Analysts from DBS and RHB say near-term risks have increased, with oil prices creeping lower week to week.

RHB researchers have cut their earnings forecast for Keppel’s oil and marine sector by 13% as of 10 March. They maintained a ‘buy’ rating for the stock while lowering share target price from S$7.80 to S$7.60 per share, based on the company’s diversified asset structure, which includes infrastructure and property.

They estimated that the overall stock still would offer a 35% upside plus an estimated 4% dividend yield for 2020, with property earnings remaining on track at present.

The upcoming acquisition by Temasek Holdings – in which Temasek is seeking to acquire an additional 30.55% stake in Keppel for S$7.35 a share to increase its overall stake to 51%, are also viewed as positive valuation factors by RHB.

DBS analysts, meanwhile, do not expect oil prices to remain low for long, as they do not believe that the Saudi-led Organization of Petroleum Exporting Countries will ‘turn on its taps too wide in practicality beyond the current posturing’.

On that note, they wrote that Keppel’s share price as of 10 March looks appealing, offering a b30% upside to Temasek’s partial offer price of S$7.35 per share.

‘Assuming the deal goes through and 39% of shareholdings are divested at S$7.35 (a share) to Temasek, shareholders are effectively paying S$4.90 per share at current share price, though that hinges on a successful partial offer,’ they wrote.

As at 4.30pm on Friday 20 March, Keppel Corporation shares are trading at S$5.17 apiece.

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