Keppel Corp

Keppel Corp: a key customer, Standard Drilling, recently sold one of its rigs (being built at KepFELs yard) to Msia’s UMW Oil & Gas, with a 2nd rig option to be sold at a total gross combined px of US$426m. Standard expects to make a profit of US$8.5m on the first rig, and another US$7.8m if the option is exercised. Standard still has another 4 similar KFELS B Class drilling rigs under construction at KepFELS yard. Nomura notes the sale has strengthened Standard’s balance sht and reduced its capital commitments by US$298m to US$605m, and Standard expects net funding for the remaining 4 rigs to be “comfortable”. Nomura views the secondary transaction as positive as it lightens KEP’s exposure to a single customer, and also indicates that demand for their high spec KFELS B class jack up rig remains robust. The house notes KEP trades at FY12/13e P/E of 12-13x, vs historical P/E band of 8-22x. Believes the stock’s dividend yield of 4.4% and avg ROE of 20% are attractive relative to peers. Reiterates Buy rating with TP $13.80.