Daiwa cut its earnings outlook for Keppel Corp. after the company’s first-half earnings slightly missed its forecast on a lower-than-expected contribution from the offshore and marine division.
The bank cut its 2018-20 earning per share forecasts for Keppel by 4-8 percent on lower O&M and property revenue assumptions. It cut its target price to S$8.70 from S$9.12; it kept a Buy call.
The first-half adjusted earnings of S$535 million, excluding a fair value gain on Nassim Woods, accounted for 48 percent of Daiwa’s full-year earnings forecast, it said in a note on Thursday.
Keppel Corp. reported on Thursday that its net profit for the first half of 2018 rose 38 percent on-year to S$583 million, while revenue increased 7 percent on-year to S$2.993 billion.
Daiwa said it now expected the O&M division to post a pre-tax loss of around S$20 million for 2018, compared with its previous forecast of a pre-tax profit of S$9.2 million.
It pointed to a potential positive from Brazil media reports in early July that Sete Brasil may sell four offshore rigs, two each from Keppel and Sembcorp Marine, to an unknown buyer for US$550 million.
“The low offer could entice the buyer to complete the construction of these rigs without a significant change in the original construction terms, reducing the risk of further provisions to be made by the Singapore yards over the next few quarters, in our view,” Daiwa said.
Daiwa noted that the property division posted second-quarter earnings of S$225 million, more than double the year-earlier quarter, amid two residential en-bloc sales in Shenyang and a stake sale in Quoc Loc Phat for a total consideration of S$350 million.
But it also pointed to significantly slower residential sales in China, with 800 units sold in the first half of this year, compared with 1,810 in the year-earlier period.
“While the property outlook for China and Singapore has been impacted substantially following a slew of property measures by the governments to prevent run-away residential prices, we see Vietnam becoming a key sales contributor to Keppel’s property division over 2018- 20,” it said, noting that around 6,190 units will become available for sale there over 2018- 20.
The stock ended Friday up 1.87 percent at S$7.09.