Keppel Corp

Keppel Corp: During the recently concluded Nomura conference, Keppel Corp's mgmt notes that the dayrates and utilizations for jack-up / semi-sub rigs remain high since Sep 12 and are now approaching 2008 peak levels of ~US$400,000/day. Utilizations for high and medium specification subs are running at ~100%. Nomura see strong incentives for operators to increase orders, and note that 50%+ of current jack-up/semi-sub vessels are older than 30 years, which may result in decommissioning in this cycle. Nomura expect Keppel to secure $6.5b in new orders in 2013F; Keppel has secured $3b in new orders year-to-date. Nomura believe order strength is likely to continue with increased exploration activities in Mexico, India, Gulf of Thailand, Middle-East, North-Sea and Vietnam. Separately, management acknowledged rising competition in offshore from China and Korea and continue to believe it is not a threat near-term, given that the Singapore yards has proven capabilities and their own IP to remain profitable in this cycle. Management reiterated O&M margin of 10-12% longer term. However, Nomura believe margins could see upside in 2013F given a strong delivery schedule in 2013F and probably stronger orders from upgrades/conversions and given more vessels are based on their own design. On addressing the potential labour shortages as Singapore’s labour laws restricting foreign labour get effective in 2016, mgmt will manage lower capacity at Singapore yards by increasing utilization of its other Asian yards in Bintan (Indonesia), Batangas (Philippines) and Nantong (China). Nomura has a BUY rating with TP of $13.20.