KepCorp

KepCorp: CLSA has results preview. House would be looking out for stabilization / recovery in O&M margins as well as improvement in FCF when Keppel reports on 18th Oct after market. Overall, maintains O/p with $12.90 TP. SOTP derived target price of S$12.90 offers 19% upside including yield. FY12 forecasts are broadly in line with consensus and expect 3Q12 profits to be also within expectations. 1H12 results were very strong (65% of full year estimate) mainly due to one-off gains from recognition of revenue from sales at “Reflections” project under the deferred payment scheme and thus expect a sequential slowdown. While rev can be lumpy, expect 3Q12 rev of $2.9-3.1bn and net profit of $330-350m. Expect O&M margins to have bottomed out in 2Q12 and will thus watch out for a recovery as the co starts recognizing contracts won in 2011 which had better margins. FY12 O&M margin forecast is 14.4% which implies a sequential recovery. Additionally expect Keppel’s FCF to also improve significantly as it delivers 7 jackups, 1 semi and over 4 FPSO projects in 2H12.