Keppel shares slip despite selling five jackup rigs

Keppel Corp. shares slipped on Wednesday intraday despite news that it sold five existing jackup rigs to a single buyer.

The stock was down 0.61 percent at S$8.17 at 11:54 A.M. SGT, but it was outperforming pure-play rigbuilder Sembcorp Marine, which was off 1.81 percent.

Nomura said in a note on Wednesday that the deal was positive, but it wasn’t changing its Neutral call or its S$8.70 target price.

“We view this as a favourable outcome given that KEP still has seven jackup rigs which are delayed and where the customer has not taken delivery,” it said.

But it said that while it was positive on Keppel’s earnings outlook, it estimated that the quarterly earnings momentum had likely peaked in the first quarter, while the valuation appeared “fair” and consensus earnings growth estimates were “likely aggressive.”

It noted the street was forecasting profit after tax and minority interest (PATMI) compound annual growth rate (CAGR) of 17 percent, compared with Nomura’s forecast for 10 percent.

Keppel Offshore & Marine, via its subsidiary Keppel FELS, signed a deal to sell five existing jackup rigs to Borr Drilling for a total value of around US$745 million, the company said in a filing to SGX before the market open on Wednesday.

Borr Drilling will pay the first installment of US$288 million within 20 days of the deal signing, with the remainder due within five years of the delivery dates of each individual rig, on seller’s credit at market interest rates, the filing said. Delivery is expected from the fourth quarter of 2019 through the end of 2020, it said.

That pricing compares with the conglomerate’s January-to-March net profit of S$337 million, which was up 34 percent on-year after the property division’s net profit rose nearly 300 percent on-year to S$387 million. The offshore and marine division posted a net loss of S$23 million for the quarter.

Nomura said its only Buy in the Singapore oil and gas sector was Sembcorp Marine on an improving new order outlook, better gearing and a clean orderbook.