Analyst briefings: Keppel 2Q19 earnings

Keppel Corp. reported Thursday its second quarter net profit dropped 39 percent on-year to S$153 million on the absence of year-ago contributions from en bloc property sales.

Shares of Keppel ended Friday down 0.30 percent at S$6.57.

These are analyst calls on the earnings:

UOB KayHian

UOBKayHian said the first-half results were in line with its forecasts and pointed to an improving outlook for Keppel, as the offshore & marine segment showed improvement.

“While we do not envision a quick recovery in the rig-building sector, we note that as a reflection of management’s growing confidence, its headcount in this business segment rose 7 percent quarter-on-quarter,” the brokerage said in a note Friday. “Year-to-date new orders of S$1.9 billion has already exceeded that of the whole of 2018 which saw S$1.7 billion in orders.”

But it noted that heading into the results announcement, consensus forecasts were “on the high side,” and it expected forecasts would be revised lower over the next week or so.

“However we believe that the quality of the company’s earnings has improved over the past two years and it has executed its projects well in all of its business divisions,” UOB KayHian said.

It resumed coverage of Keppel at Buy with a S$7.61 target price.

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CGS-CIMB said there were “no major surprises” in Keppel’s second-quarter earnings.

It noted first half profit was around 37 percent of its full-year forecast, but the brokerage was “hopeful” of a stronger second half, with better margins from the offshore & marine segment and contributions from a SSTEC land sale in the investments segment.

The brokerage said it kept its earnings forecasts and its S$8.41 target price unchanged.

“We expect some pull back in share price in the near term and see it as buying opportunity,” CGS-CIMB said in a note Thursday. It kept an Add call.


Daiwa said Keppel’s second quarter results missed its below-market forecast.

While the offshore and marine segment has seen “green shoots” of recovery, with positive new order win momentum, project margins are likely to remain depressed this year and next, with no major earnings contributions expected from the division for the next one to two years, Daiwa said in a note Thursday.

The property division posted S$130 million in net profit for the quarter, marking 85 percent of Keppel’s earnings, but that was the low end of expectations, Daiwa said.

But it added, “We do expect divisional earnings to pick up in the second half of 2019, when we expect more than 2,500 property units to be completed across China and Vietnam.”

The investment bank raised its 2019-2021 revenue forecasts by 3 percent on expectations for a more positive offshore and marine contribution as new order wins accelerate; it noted the year-to-date new orders of S$1.9 billion are near its previous full-year estimate of S$2 billion. Daiwa raised its new order estimate to S$2.5 billion.

But it added it was lowering its 2019-21 earnings per share forecasts by 4 percent to 5 percent to account for the first-half earnings weakness and lower profitability assumptions across all divisions.

It lowered its target price to S$6.95 from S$7.10, but kept an Outperform call.

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OCBC said Keppel’s results were “generally within expectations,” after excluding charges related to the M1 acquisition, lease-accounting changes and the consolidation of M1.

It kept its Buy call and S$7.83 fair value estimate unchanged.


RHB said Keppel’s second-quarter results “slightly missed,” with first-half net profit coming in at 37 percent of its full-year forecast.

The brokerage trimmed its 2019 recurring net profit forecast by 8 percent on the weak first half.

But it added the outlook was positive.

“We believe the property division could see stronger numbers in the second half of 2019 – we are encouraged by the early-July strong sales at Seasons Residences,” RHB said in a note Friday. Seasons Residences phase three in Tianjin Eco-City was launched in early July, with all 193 units sold within a day, the brokerage noted.

RHB also pointed to the offshore & marine division securing S$1.9 billion in new contracts so far this year, more than S$1.7 billion in 2018.

It trimmed its target price to S$7.30 from S$7.33, but kept a Buy call.

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