Keppel shares dragged by rig-building exit, revenue drop

• Keppel Corporation (SGX: BN4) share price hits S$5.07 a share, down over 7%
• The company is axing its rig business and part of the logistics arm, it announced as part of its FY2020 financial results
• Meanwhile, final cash dividend for 2020 will be S$0.07 per share, down 41.7% from 2019’s S$0.12
• Trade Keppel, long or short, with an IG account today

Keppel gives oil and marine arm a facelift

Shares of Keppel Corp fell 7.14% to S$5.07 by 11:59 SGT on Friday (29 January 2021), as investors reacted negatively to the conglomerate’s wider-than-expected losses and plans for the offshore and marine (O&M) and logistics arms.

The world’s biggest offshore rig builder is quitting that business, after it completes existing rigs, amid what the group dubbed a ‘bold’ transformation to seize clean-energy opportunities.

The organic restructuring will offload the sagging rigs and bring about a healthy balance sheet. Keppel O&M will thus become more competitive, asset-light and with a ‘significantly reduced headcount’, moving up the value chain to focus on design, engineering and procurement.

‘Keppel O&M will exit the offshore rig-building business, and also progressively exit low value-adding repairs and other activities with low bottom-line contribution,’ said group CEO Loh Chin Hua.

The market had probably hoped for a full divestment of the O&M arm, but given the challenging environment, ‘an immediate exit may not be feasible’, CIMB wrote. Still, Keppel reiterated that an inorganic option - a merger or full divestment - is still on the table.

CIMB maintained ‘add’ and a S$6.40 target price, noting that the restructuring efforts will take time to bear fruit.

As of 10:34 SGT on Friday, 11 in 15 analysts rated Keppel a ‘buy’, and the average target price was S$6.01, according to Bloomberg data.

Credit Suisse and Macquarie were ‘neutral’ on Friday, with target prices of S$5.30 and S$4.56 respectively. Morgan Stanley was ‘overweight’ and issued a S$6.33 target on Thursday, while HSBC rated it ‘buy’ with a S$6.79 target price.

Keppel downsizes logistics business

The conglomerate is also planning to sell the logistics business in Southeast Asia and Australia as well as its channel management business.

This is to sharpen the group’s focus, despite the growth of logistics under Keppel T&T amid greater demand for e-commerce and urban logistics over the past year.

The first bids are expected this February; Keppel may decide to divest its entire logistics business or continue to hold a minority stake. CGS-CIMB believes logistics is likely to remain in the group, albeit at a reduced stake, to ride on the e-commerce demand.

Final cash dividend is 41.7% lower in 2020

Keppel spilled red ink last year, dragged by substantial impairments in O&M, which was the sole loss-making key business unit.

Net loss stood at S$506 million for 2020, a vast reversal from 2019’s S$707 million net profit. It was also worse than the S$237 million loss CGS-CIMB had forecast.

Impairments totalled S$952 million, the bulk of which was recognised in Q2 2020.

Revenue shrank 13% to S$6.6 billion, due to lower contributions from three segments: energy and environment, urban development, and asset management.

Its directors proposed a final cash dividend of S$0.07 per share for 2020, roughly 41.7% lower than the S$0.12 per share in 2019.

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