Among listed entities, Keppel Land has seen the sharpest price decline of 14% in the last two weeks for this latest market de-rating. The key concern for Keppel Land is its exposure to the Singapore office property sector, where rental rates are expected to come off. Keppel Land will see some 3.8m square feet of GFA coming onstream from 2010 onwards from the Marina Bay Financial Centre and Ocean Financial Centre.
SPC saw its share price decline by 11% on concerns of the effect of lower crude oil prices, currently at US$44 per barrel. Along with thinner to possibly negative refining margins, SPC is likely to suffer from lower throughput of refined product due to weak end-demand. Depressed crude prices will also eat into its upstream business’ profitability. We are therefore further reducing Keppel’s associate earnings from SPC by 50%.
Regional shipyard valuations are currently at 5.1x forward earnings, versus 8x at the start of the year. We are pegging O&M’s valuations to Sembcorp Marine’s 5.7x FY09 PER, due to the similar nature of its businesses. While O&M’s earnings look secure for the next 2 years on its current orderbook, the outlook from 2011 is less rosy, with an expected cyclical downturn in offshore, underpinned by weak crude oil prices.
We are cutting FY09 forecasts by 15% to S$977.9m, for an 11% YoY contraction, and FY10 by 20% to S$977.1m. We are assuming no sales at Reflections for the next 2 years, and lower earnings at SPC. O&M will also taper off from 2011 onwards. Despite already cutting our target price, there is further downside bias – trough Price to Book ratios applied to all of Keppel’s entities will yield a valuation of just S$3.00.
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