Analysts say all eyes are now on the offshore and marine business, which is under strategic review

 

INVESTOR optimism gave Keppel Corp' s share price a boost on Friday, after the conglomerate said it was back in the black for the July-September period versus the previous quarter' s S$697.6 million net loss.

 

The stock gained 5.4 per cent or S$0.23 to reach a high of S$4.50 at about 11.26am. It then slowed slightly to end at S$4.39 for the day, up 2.81 per cent or S$0.12. About 10.8 million shares changed hands.

 

In August, Keppel shares had tumbled when Temasek Holdings abandoned its partial takeover offer for the company following its second-quarter loss.

 

DBS Group Research said in a report on Friday that all eyes are now on the offshore and marine (O& M) business, which is under strategic review.

 

Keppel has embarked on a recovery path with its property sales improving especially in Singapore and China, while O& M activity is picking up. " A clearer Vision 2030 roadmap and an affirmation of capital recycling to unlock S$3-5 billion from identified assets over the next three years should restore confidence," wrote DBS analyst Ho Pei Hwa.

 

To accelerate its Vision 2030 roadmap, the group has established a transformation office, along with a 100-day plan to drive results across all segments.

 

DBS noted that the O& M strategic review could be concluded by the end of this year, which will be a potential rerating catalyst.

 

As yard restructuring is much needed in this prolonged downturn, the review will " shine some light at the end of this long tunnel" , Ms Ho said.

 

" We believe spinning off the (O& M) business would be deemed positive, allowing Keppel to focus on its other businesses," she said.

 

Similarly, CGS-CIMB wrote that a full divestment of the O& M segment could be a rerating catalyst, although valuations may not be attractive in the current market.

 

CGS-CIMB analyst Lim Siew Khee said other possible outcomes of the review include a reduced stake in Keppel O& M, retaining only the renewable-energy aspects of the business, or merging it with Sembcorp Marine.

 

Since the onset of the novel coronavirus pandemic early this year, Keppel O& M has put in place cost management measures, which will reduce annual overhead costs by more than S$90 million starting from 2021. The group on Thursday said it is working on further cost cuts.

 

OCBC Investment Research on Friday said: " We have always held the view that there is value in the stock waiting to be unlocked, but the question is how and when.

 

" With management committed to undertaking steps to do this, investors will focus on the new opportunities that the group will seize - including renewable energy, data centres and smart urban solutions - and its execution ability which will translate to realised returns eventually," said OCBC. It gave the stock a " buy" recommendation and fair value of S$6.00. The research team expects the O& M review to be concluded by early next year.

 

For Q3, while O& M remained in the red and overseas property home sales slowed, the infrastructure, M1, and asset management businesses were resilient.

 

CGS-CIMB estimated that the O& M arm' s revenue for the three months came in " flattish" on a quarter-on-quarter basis, at about S$261 million. The brokerage believes O& M revenue could improve quarter on quarter for the last three months of this year as more workers return to the yard. The segment' s active workforce in Singapore was 15,000 by end-September, up from 5,000 in July.

 

The O& M arm has won S$900 million worth of new contracts in the year to date, 72 per cent of which were for offshore wind and liquefied natural gas projects.

 

CGS-CIMB kept its " add" call on the stock with a S$6.46 price target. The brokerage expects the shares to trade up to their long-term mean of 12.8 times 12-month forward price-to-earnings ratio or 1.9 times price-to-book-value (P/BV).

 

DBS reiterated its " buy" rating and price target of S$5.50. The counter is " trading at an attractive valuation near the trough of 0.7 times P/BV ratio or two standard deviations below its five-year mean" , Ms Ho said.