Keppel Corp

Keppel Corp: blowout 1Q12 results. Net profit came in at $751m, ~50% of consensus 2012 net profit estimate. The strong beat was due to the lumpy Deferred Payment Scheme (DPS) revenue recognition of $1.3b at its 70% owned Reflections at Keppel Bay project. This resulted in the property division’s $393m net profit (+702% yoy) vs the O&M business’ $235m (+9% yoy). Takeaways from the conference call were largely positive: i) the last 100 property units under the DPS will be delivered in 2Q12; ii) O&M EBIT margins fell to 15% from 21% in 4Q11, as revenues now reflect mostly post-crisis orders. While KEP stated that margins may fall to 10- 12% in coming quarters, it maintains full-year guidance of 12-15%; iii) despite the mixed macro picture, rig order enquiries remain active and rig financing for customers (not for speculators) has in fact selectively improved from 4Q11; and iv) KEP stated that it may not need to expand Brazil yard capacity (though plans have yet to be finalized), as its 6 Sete Brasil semisub orders have a local content requirement of only 55% (i.e. 45% of the work can be completed overseas) and that KEP can also do yard improvements to enhance capacity. v) KEP guides that its joint devt with ConocoPhillips on the first ice-class jackup rig is past the conceptual design phase, and is ready to move on to detailed engrg works. This paves the way for KEP to receive the first orders. The US Geological Survey estimates the Arctic to possibly hold ~25% of undiscovered O&G reserves globally. BOA-ML maintains Buy with TP $12.53. JPM keeps at Overweight with TP $13.30, says the stock remains one of its top picks within its Spore coverage. Morgan Stanley maintains at Equalweight. Goldman Sachs maintains Neutral but raises TP to $10.80 from $10.00 to reflect the on-avg higher 2012-14 EPS estimates.