Keppel Corp

Keppel Corp: likely to see trading interest today, after Ensco says it will order 2 ultra-premium harsh environment jackup rigs (Super A design) from Keppel FELS, worth a combined US$440m. The rigs, capable of being deployed in the North Sea, are scheduled for delivery in 2Q and 4Q 2013. The contract comes with options for 2 additional jackups at similar terms, to be exercised by Aug 2, 2011. Keppel has not yet made an official announcement…

Ytd, Keppel boasts new orders of 6 jackups worth an aggregate S$1.6b. The latest contract also comes at a higher price tag of US$220m/rig, vs US$180-190m /rig previously. Order momentum appears strong, and combined with outstanding options for another 11 rigs, Keppel seems on track to beat mkt expectations of S$4-5b of orders by year end. Stock closed -1.5% at $11.56 yday, dragged by overall mkt weakness. Almost the entire Street rates at Buy, with TP ranging btwn $12.05 - 16.00…

Key risk is that Keppel appears to be granting its customers favorable payment terms, with 20% due at contract signing and remaining 80% due on delivery, whereas in the past, progressive payments were made on the 80%. As Keppel takes on more debt to finance its increased working capital requirements, higher interest rates in future may have a negative impact on earnings.