Keppel Corp

Keppel Corp: strong 3Q11 results ahead of expectations.
Revenue at $2.7b was up 18% yoy and qoq, and
record high net profit at $406m was up 33% yoy (3Q10 restated) and 6% qoq.
The key highlight was the strong O&M margins achieved, with EBIT margin surging to 26% (+175 bps qoq, +700 bps yoy), returning to record levels once again.
O&M contributed 84% of group profit (vs 70% in 1H11). Property was in line while Infrastructure was below expectations.
3Q11 annualized ROE remains above 20%.

Current orderbook now stands at ~$9b, almost double from Dec ’10 total of $4.6b. this has been a solid yr for KEP O&M, with ytd new order wins at a record $8.7b, surpassing the previous peak set in 2007. KEP expects a robust E&P outlook over the next two years, underpinned by higher crude oil prices; says enquiry levels have remained stable over the past quarter despite macro headwinds. Geographically, KEP expects rig demand to be underpinned by North Sea (harsh weather jackups) and GoM (semisubs) where activity is gradually picking up after a long lull. Global demand for semisubs has also started to improve. KEP is in contention for six rigs from Petrobras tenders via Sete Brasil, which is expected to conclude soon. Nevertheless, we note that over the last one month, 3 of KEP’s options (from Discovery and Dynamic Offshore) have lapsed and now 3 are outstanding (all from operators) and all will expire by year-end.

The majority of the Street retains their Buy / Outperform calls, though mostly premised on oil price staying >US$80 bbl and on sustained order wins.
DMG maintains Buy, raises TP to $11.40 from $11.03.
CS reiterates Outperform, raises TP to $12.40 from $11.60.
JPM retains Overweight, lowers TP to $12.80 from $13.70.
RBS maintains Hold with TP $11.60.
The others have Buy/ Outperform ratings with TP ranging btwn $10.66 – 13.45.