Keppel enjoys upbeat first quarter, assessing KrisEnergy impact

Research teams kept a positive outlook on Singapore-based conglomerate Keppel Corp despite a potential hit from KrisEnergy’s troubles.

  • Keppel Corp Ltd (SGX: BN4) share price reaches S$5.45 per share on Friday
  • Its revenue was stable year-on-year at nearly S$1.89 billion for 1Q21
  • DBS foresees the O&M arm’s order book doubling if it wins a major contract
  • Keppel could book impairments soon, given KrisEnergy’s latest filing, CIMB believes
  • Buy and sell Keppel shares with an IG account

Keppel share price regains momentum

Keppel Corp’s stock price swung back up after the property and offshore giant reported encouraging operational results for the first quarter this year.

Shares of the conglomerate - which has core businesses in property investments and development, offshore and marine (O&M), and infrastructure-based activities - finished Friday (23 April 2021) at S$5.45, climbing 2.3% on the day.

Earlier last week, Keppel shares had slumped following KrisEnergy’s disappointing production results.

DBS Group Research on Friday upgraded Keppel to ‘buy’, from ‘hold’, while lifting its target price to S$6.20 from S$5.85.

CIMB analyst Lim Siew Khee reiterated ‘add’ on Keppel shares and a S$6.40 target price, stating that key catalysts would include divestments and new growth initiatives such as in renewable energy and electric vehicles.

Keppel posts resilient 1Q21 top line

On Thursday after trading hours, Keppel released its first-quarter business update, announcing that group revenue inched up to almost S$1.89 billion, compared to S$1.86 billion in the corresponding period last year.

In the urban development segment, revenue soared by 70%, as Keppel Land’s home sales tripled year-on-year on the back of higher contribution from China and Vietnam.

Meanwhile, the O&M arm returned to positive Ebitda, and is in advanced talks with Brazil’s Petrobras for a huge FPSO (floating production storage and offloading) newbuild contract worth US$2.28 billion. This ‘game-changing’ deal could double Keppel O&M arm’s order book, DBS analyst Ho Pei Hwa highlighted.

She said Keppel’s ‘encouraging’ first-quarter performance ‘affirms recovery across the board’.

Keppel weighs financial impact of KrisEnergy woes

Last Tuesday, debt-laden KrisEnergy announced that due to continued ‘disappointing’ output from its crown jewel oilfield, its restructuring plan was no longer viable. Keppel is a major shareholder and creditor of the ailing oil and gas firm.

The oilfield played a critical role in cash-flow generation. Keppel said it is evaluating the potential financial impact relating to KrisEnergy, and will determine the best course of action.

Keppel’s stock sank about 3-4% between last Monday and Thursday, ‘more than pricing in’ the potential impairment for KrisEnergy, the DBS research team wrote. Based on Friday’s close, Keppel shares were down 1.3% from the start of last week.

CIMB’s Lim believes Keppel could take on some impairments in the coming quarters, though the final impact from KrisEnergy remains uncertain.

The conglomerate’s total exposure to KrisEnergy is about S$420 million. As the debts are backed by a first-right claim on KrisEnergy’s oil and gas assets, ‘some significant portion of the amount should be recouped via asset sale in the worst-case scenario that KrisEnergy goes under’, said DBS.

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