Deal clinched from Municipal client. The EFW CHP plant is part of a Private Finance Initiative (PFI) waste management project by the Greater Manchester Waste Disposal Authority. We believe this award is positive for Keppel as it opens doors to securing more contracts from Municipal clients (ie. local government/authorities). We see opportunities in Europe as there are currently more than 20 PFI waste management contracts up for tender. Though the current economic downturn may have affected the progress of these highly capital-intensive projects in the short term, we note that the UK government has announced the provision of up to GBP3b of funding for waste PFI contracts that are facing financing difficulties. Securing this contract also signifies the UK government’s acknowledgement of Keppel Seghers’ technological strength, especially in meeting stringent EU environment targets.
Raising TP to S$5.24 (from S$4.55 previously), but recommendation stays at NEUTRAL. We estimate that this contract would only contribute to Keppel’s revenue from FY10 onwards. Thus, we have raised our FY10’s topline by 1% and bottomline by 0.6%. Our recommendation stays at Neutral, with a revision to our target price to S$5.24 (from S$4.55 previously), following adjustments to our sum-of-the-parts valuation:
1. 2.5x P/B FY10 valuation for KOM.
2. DMG’s target prices of S$1.80 for Keppel Land and S$2.95 for SPC
3. 11x P/E FY10 valuation for Infrastructure
4. Market values for Keppel’s listed entities (closing prices as of 9 Apr 09).
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