Keppel Corp

Keppel Corp: Following the completion of a FEED study, Keppel has signed a condition contract with Golar LNG for the conversion of an LNG carrier to a floating LNG vessel (FLNGV). The contract will be made effective upon initial milestone payment, which will be met through a share issuance by Golar raising about US$600m. According to Golar, Keppel will be awarded the main contract for vessel conversion, and Black & Veatch will have a sub-contract for the liquefaction topsides. The conversion of the vessel is expected to take 31 months and be completed in end-2016. CS believes Keppel's profitability for this project will depend on the degree of risk-sharing in the contract, given the new technology and potential for cost overruns. The project will also raise questions on the economics of newbuild vs converted FLNG. House maintains OUTPERFORM rating on Keppel Corp as they believe progress made on the FLNG conversion presents a potential growth driver if proven to be commercially viable. CS has a TP of $12.70 for the counter.