CGS-CIMB: Keppel shares could be rangebound while waiting for Temasek deal OK

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Keppel Corp.’s shares could be stuck in a S$6.61 to S$7.00 range while waiting for the pre-conditions for Singapore state-owned investment fund Temasek’s partial offer to be met, CGS-CIMB said in a note Tuesday.

“We expect Temasek to take at least six months to satisfy ALL of the pre-conditions,” the brokerage said. “Following the pre-conditions, it could take three to four months to get the nod from greater than 50 percent of KEP’s shareholders. The entire process could take at least nine to 10 months.”

Temasek said Monday it is making a bid to increase its stake in Keppel to 51 percent for S$7.35 a share in a more than S$4 billion deal.

The deal is conditional upon Temasek receiving enough acceptances to result in it having a 51 percent stake and upon the approval of independent shareholders as well as upon regulators’ approval, the filing said. The offer is also conditional upon Keppel’s financial performance not deteriorating materially in the interim.

Keppel’s earnings disappointed some analysts. Last week, Keppel reported its third quarter net profit dropped 30 percent on-year to S$159 million, mainly on year-ago gains from divesting a commercial development in Beijing and higher net interest expense.

CGS-CIMB said the “excitement” over the S$7.35 a share offer, which was 25.9 percent above the last traded price Friday, could push Keppel’s share price closer to the offer price near term, although gains are likely to be capped by an around 5 percent profit-taking arbitrage buffer.

That implies a top-end range of S$7.00, the note said.

“However, the downside of the long and tedious process for pre-conditions could lead to a lethargic share price, trading lower to S$6.61,” it added.

CGS-CIMB pointed to market expectations that Temasek would use an enlarged Keppel stake to merge the company’s troubled offshore and marine operations with rival Sembcorp Marine.

“We see long-term value in KEP post divestment of O&M, freeing up capital for its asset-light and investment strategy,” CGS-CIMB said.

CGS-CIMB kept an Add call with a S$8.36 target price on Keppel.

Shares of Keppel ended Tuesday up 14.38 percent at S$6.68.

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