Keppel Corp

Keppel Corp: (S$8.75) Transocean delays taking delivery of rigs by another 18 months
Keppel Corp sank 1.2% to $8.72 in early trading, after one of its major rig customers, drilling contractor Transocean, confirmed that it has further delayed deliveries for five newbuild high-specification jack-up rigs it ordered in Nov ’13 by another 18 months.

This is in addition to the six-month extension announced in Feb ‘15. The postponement means that the first rig will now be handed over in early 2018, a full two years later than originally planned, with the rest of the rigs to be progressively delivered by 1Q 2020.

The rigs are valued at $1.4b or 12.4% of Keppel Corp's outstanding order book of $11.3b. Another three rigs for Fecon International worth US$650m may also be at risk.

With oil prices falling to a six-year low, the offshore market is now facing a rig downcycle with significant drop in rig utililisation and charter rates as upstream players cut back on exploration and production capex.

This has taken a toll on the rigbuilders, which has yet to see a single order placed since the start of the year and pushed back the timetable for construction of new rigs.

Maybank-KE is Underweight the O&M sector, and has a Hold rating on Keppel Corp, with a TP of $8.50.