Keppel’s earnings forecasts face potential cuts amid declines in China home sales, UOB KayHian said in a note on Friday.
“A 74 percent year-on-year decline in China home sales as well as reduced launches in 2018 see our property earnings estimates having downside risk,” UOB KayHian said.
It noted Keppel reported first quarter net profit of S$337.5 million, which got a fillip from a S$289 million net gain from a property divestment in China. Excluding that and other one-offs, core net profit was just S$55 million, just 7 percent of the brokerage’s estimate for the full year and below expectations, the note said, adding the earnings forecasts were under review.
UOB KayHian noted that Keppel’s 2018 property earnings will be mainly driven by China, but launches in Wuxi, which makes up around 38 percent of the 2018 China property earnings estimate, have been scaled back and will likely negatively impact this year’s earnings.
Additionally, it expected an Offshore & Marine earnings recovery “would take time.”
It noted the division’s revenue in the first quarter had a higher contribution from repair work than contract construction work.
“While oil prices have recovered to over US$70/bbl, we re-iterate that projects continue to be sanctioned at US$40/bbl breakeven, which entails low contract margins. Even if more orders are secured, earnings are expected to be lacklustre in the near to medium term,” it said.
It kept a Buy call, but trimmed the target slightly to S$9.00 from S$9.10.
“Keppel remains our preferred pick to play the recovery in the offshore sector, being a cleaner proxy supported by multiple engines of growth over what is likely to be a prolonged earnings recovery,” it said.
The stock ended Friday up 1.73 percent at S$8.21.