Keppel Corp

Keppel Corp: Jackup rig orders have surprised on the upside in 1Q13 driven by demand from Mexico, strong demand for harsh environment and higher spec jackup rigs rigs as well as replacement demand; and as the largest jackup rig builder globally Keppel Corp is a prime beneficiary of this trend. Keppel and Sembcorp Marine have secured slightly under half of the 19 orders YTD at good pricing indicating that Singapore yards remain competitive even in light of increasing Chinese competition. Additionally, pricing for Keppel and SMM has remained stable even in light of increased competition with standard KFELS B Class contract values ranging between US$205-210m which is almost a 15% premium to the pricing in 2011. Stable pricing indicates that drilling companies are willing to pay a premium for established yards. YTD order wins make up 31% of original $5.1b order win forecast. CLSA have raised its FY13 order win estimates to $5.6b implying 6 jackup rig order wins for Keppel. Keppel is currently trading at 13x FY14 P/E which is slightly above 10-year average but CLSA believe that a combination of improving FCF (and thus likelihood of a higher payout), stable margins and contract win momentum will continue to support share price.