Keppel Corp 2Q10 core net earnings of $347m (+9% yoy; +8% qoq) were in line with market expectations. Higher O&M EBIT margins (~20%) and increased profit contributions from the property division (+101% YoY) underpinned the strong results. In view of the improved performance, the group raised its interim DPS to 16¢ from 15¢ in 1H09.
Year to date new order wins reached $1.9bn, of which 90% was secured in the 1Q. This takes its current orderbook to $5bn, down from $5.8bn in 1Q. While the fallout out GOM oil spill has caused near-term uncertainties, the longer term prospects remain intact as above US$70 oil price and stricter safety regulations and survey compliances are conducive for E&P investment. New rigs may be required to replace the aging deepwater fleet that does not meet safety standards.
We are also optimistic on Keppel’s chances to clinch part of Petrobras’ 28-rig tender award, which is expected to be out in the coming weeks. We expect the 2H to be slower on the O&M side as margins normalize, partially offset by healthy launch schedule from Keppel Land. We maintain our TP of $11.07 on the stock with share price underpinned by Petrobras’ potentail orders and a pick-up in O&M activity.
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