O&M segment surprises on margins; we raise FY09E/10E/11E EPS by 12%/14%/17%: Keppel reported a 2Q09 recurring net income of S$317 million versus J.P. Morgan’s estimate of S$270 million, 17.4% better than expected. The key reason for the variance was the stronger than-expected performance by the O&M segment due to steep expansion in the EBIT margin from 10% in 1H08 to 11.1% in 1H09.
Petrobras orders remain the big driver for offshore sector; three ‘potential’ near-term opportunities for Keppel: While the upcoming round of 7-11 rigs (7 PBR-owned and the rest being chartered out) remains the key opportunity for Singaporean/Korean yards, in the near term we see additional potential catalysts for Keppel, namely (a) potential US$4 billion order for the eight FPSO hulls (the entire set of eight hulls is likely to go to a single winner), alongside (b) news flow of Technip being a leading candidate for P-58 and P-60. Given Technip and Keppel’s close working relationship for P-51, P-52, and P-56, Keppel may benefit if these two assets are eventually awarded to Technip.
Price target, valuation, key risks: As a result of our raised estimates and new timeframe of Jun-10, our PT increases to S$9.50. This implies 14x 2009E earnings and a 3.7% dividend yield. We believe the key risk to our PT is a continued global slowdown leading to worse-thanexpected new orders.
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