Keppel Corp downgraded by Nomura as earnings set to peak

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Nomura downgraded Keppel Corp. to Neutral from Buy, saying the stock’s re-rating was set to pause as earnings were peaking.

Quarterly earnings momentum likely peaked in the first quarter, with Keppel reporting profit after tax and minority interests (PATMI) of S$337.5 million, up 34 percent on-year, Nomura said in a note on Wednesday, noting the rise was driven by the property segment, while the Offshore & Marine segment reported a net loss. It added that divestment gains in the property segment will likely be weaker in quarters ahead.

It said that the outlook was “fairly positive,” but had been priced in after the stock rose more than 32 percent since September. It noted that the stock trades at around 15 times 2019 price-to-earnings, compared with its historical average of 11 times.

Nomura also said that consensus estimates for Keppel’s earnings growth were “likely aggressive,” at a forecast 17 percent compound annual growth rate (CAGR) for PATMI over 2017-20, compared with the bank’s forecast for 10 percent.

Street estimates appeared to be assuming strong property earnings momentum over 2018-20 despite China home sales taking a hit from cooling measures and a solid increase in O&M earnings despite the risk of margin disappointment and weaker oil prices in 2019 as U.S. shale production rises, Nomura said.

But Nomura did raise its 2018 and 2019 PATMI forecasts by 14 percent and 6 percent respectively, kicking up its target price to S$8.70 from S$7.90.

The stock ended Wednesday down 0.49 percent at S$8.08.