Keppel Corp

Keppel Corp: BoAML gives new Buy on Keppel Corp with TP at $14.20, 15% above consensus. The positive view is mainly driven by: a positive outlook on Singapore rig building sector to face lessening competition from Chinese shipyards, (ii) readiness to fill niche for East China Sea and benefit from the increasing demand from PEMEX and Petrobras, and (iii) growing market in FLNG conversion. The house believes that actual supply of global jackup rigs under construction in the global market is overstated and should be 44/40 for 2015/16 instead of 65/45 under current delivery schedule. This is due to slippage days from Chinese yards. In addition, Chinese rig builders may have to face a major consolidation and capacity elimination exercise over the next 5-40 years, reducing the challenge posed to Singapore rigbuilders, not to mentioned established ones like Keppel Corp. Over in South America, Petrobras and PEMEX are also set to increase deepwater drilling projects strategically (i.e. may remain unaffected by commercial cycle). Keppel Corp is expected to benefit given its solid track record and relationships in Brazil. Company specific, the Titan Quanzhou shipyard is expected to fill the niche for jackups in E. China Sea water, which holds 14% of China’s gas recoverable reserve (more than S. China sea), but has yet been largely explore due to lack of rigs capable of drilling in over 450/500ft depth. Besides, order momentum in FLNG conversion seems to continue, and with estimates of global capex on FLNG facilities growing at 41% CAGR in 2014-17, Keppel stands to benefit substantially given its expertise in this area. Recall also, Golar has yet to exercise its last option for FLNG conversion with Keppel. Keppel now trades at 1.8x P/BV.