Keppel contract win is positive despite low price tag: DBS

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Keppel has firmed up a contract with Awilco, marking its first sizable contract this year, in a key positive despite the deal’s lower-than-usual price tag, DBS said in a note on Monday.

Keppel has inked a deal to build a mid-water harsh environment semisubmersible drilling rig, valued at around US$425 million, or S$560 million, DBS noted. That’s lower than the usual price tag of around US$600 million, likely as it will be built to Moss Maritime’s CS60E ECO MW design, which is a compact version, DBS said.

“There could also be some savings from material/equipment cost reductions after the industry
downturn,” it said, but also added, “We reckon margins should be lower than previous orders given the market conditions.”

‘Lower margins’

But DBS said the contract was still positive news.

“Lifting order wins and revenue is much needed during a recovery phase,” DBS said, adding the contract accounted for 19 percent of its S$3 billion order win assumption for this year. T

DBS also noted that if Awilco exercises its options to order up to another three similar rigs over the next three years, the total contract value could rise to US$1.7 billion, or around S$2.3 billion.

“Contract wins from repeat customer Awilco (Keppel has delivered three jackup rigs) is also a testament to Keppel’s capabilities in rig solutions,” DBS said.

It rates the stock at Buy with an unchanged S$10.20 target price. The stock ended Tuesday up 0.38 percent at S$7.90.

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