Nomura: Keppel still faces tough O&M outlook despite new order

While Keppel receiving a US$425 million order offers a “promising start” for the year, expecting significant earnings contributions from the offshore and marine segment this year would be “unrealistic,” Nomura said in a note on Sunday.

On Friday, Keppel Offshore & Marine’s wholly owned subsidiary Keppel FELS said it received a repeat order valued around US$425 million from Awilco Drilling for a mid-water semisubmersible drilling rig for harsh environment use.

Nomura said the order marked Keppel’s first significant new order this year, and if it gets a firm approval on its second FLNG project, would likely push its new order total up to S$1.5 billion for 2019, compared with the investment bank’s estimate for S$2 billion for the year.

However, it said the O&M segment’s recovery was likely to remain slow.

“The key challenge for Singapore shipyards remains competition from Chinese yards which continue to make inroads, especially in the FPSO conversion segment,” Nomura said. “Also, rigbuilding orders will remain weak we think.”

It pointed to a heavy delivery schedule for jackup rigs and as a young fleet for drillships with deepwater exploration still isn’t showing signs of strong revival.

“Semi-submersible rigs could see some orders (given high average fleet age), though we believe these will be few and far between,” it said.

Nomura also said Keppel’s property segment faced headwinds amid a property slowdown in China and its dependence on divestment earnings.

Keppel’s first half earnings in 2018 were around 65 percent of its full-year earnings, mainly on divestment gains, it noted.

“Should the pace of earnings delivery remain weak in the first half of 2019, we believe thestock could come under further pressure, despite the significant de-rating over the past eight months,” Nomura said.

It kept a Reduce call with S$5.90 target price.

The stock ended Monday at S$6.10, down from as high as S$7.30 in October and levels over S$8.00 in May.


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