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Broker's take: KGI downgrades Keppel Corp to 'hold' on challenging outlook

BROKERAGE KGI Securities (Singapore) has downgraded its call on Keppel Corporation to "hold" and cut its fair value for the stock from S$9.43 to S$7.50, citing a growth slowdown in its key markets and "our cautious macro views".

At 3.34pm, Keppel shares were trading at S$6.16, down S$0.04 or 0.6 per cent on the day.

KGI analyst Joel Ng noted from Keppel's fiscal fourth-quarter earnings released last week that the group's property and infrastructure segments accounted for the bulk of full-year earnings growth, more than offsetting the weak, albeit improving, performance of its offshore and marine (O&M) business and provisions under its investment segment. 

But going forward, the property segment may face headwinds in two of Keppel's key markets, Singapore and China, which accounted for 70 per cent of total home sales for Keppel in fiscal 2018. Both markets have property cooling measures in place, which Mr Ng said, may "potentially surprise on the downside".

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While Keppel's five-per cent dividend yields should provide downside support, said Mr Ng, "the upside is also limited, and thus does not provide an attractive risk-reward in the next 6-12 months."

That said, the KGI analyst said Keppel's track record of unlocking value via divestments may provide further upside to his earnings and dividends forecasts.

KGI's fair value for Keppel is derived from a sum of the parts (SOTP) valuation of its businesses, with property accounting for 50 per cent of valuation, followed by O&M (20 per cent) and Keppel Capital (15 per cent).