We do not see an immediate need for Keppel to invest in further expansion for its Offshore and Marine division. While the yard is currently operating close to full capacity from contracts that it has secured over the past two years, new order flows have been muted over the past year. Keppel’s last reported orderbook was S$9.5bn. We expect the yard to have converted around S$2bn in revenue over 2Q09, in line with 1Q09.
For its 70% owned Reflections at Keppel Bay project, Keppel had previously sold 633 units at an average price of around S$1,880 psf. Reflections has 496 units remaining, which were unsold over the past year as the property market cooled off. With the revival in interest in the property market, we believe that Keppel and Keppel Land will take the opportunity to re-launch its remaining units. We estimate that achievable prices would be in the region of S$1,800 to S$1,900 psf, which would generate additional net revenue of S$1.1bn for Keppel.
We are not yet factoring additional Reflections sales revenue stream into our FY09 forecast, which stands at S$1.57bn. (S$913.1 net of gain from SPC sale). The loss of associate earnings from the divestment of SPC is also expected to be muted and in the region of just S$80m for FY09, as SPC was facing thinner refining margins from lower crude prices.
However, we are factoring in an average selling price of S$1,800 psf for the remaining 496 units at Reflections into our Sum-of-the-Parts asset valuation, while adjusting for the SPC stake sale. Our SOTP valuation now stands at S$7.77 per share, and we are accordingly raising our recommendation to a Hold, pending Keppel’s 1H09 reporting. Assuming a 20cts interim dividend payout, FY09 yield stands at 6.9%.
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