A good deal for KEP. The proposed sale will reap cash for KEP, amounting to S$1.47b or S$6.25 per SPC share (at 15.6x FY09 PE and 1.8x px to book). The cash proceeds are S$0.92 per KEP share, raising KEP's net cash to about S$1.6b. A special dividend payout is possible, and our assumed dividend payout ratio is raised to 90% for FY09, generating yield of 7.5%.
Don't forget the uncertainty from Rowan contracts. As a recap, Rowan has previously placed orders for four Super 116E class newbuild jackup rigs with KEP. This client is now seeking payment re-negotiation on all its four jackup rig orders, and may potentially cancel its fourth order with KEP. Assuming the remaining payments for all four jackup rigs to be payable upon deliveries, we estimate that KEP needs to self-finance US$430-550m of the construction costs.
Maintain FULLY VALUED on KEP. Our fair value for KEP is adjusted to S$5.13; due to the offer price for SPC, and the higher share price for listed Keppel T&T. KEP's current price remains expensive, as it implies 21x FY10 PE for its O&M. Maintain FULLY VALUED.
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