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Brokers' take: OCBC, DBS maintain 'buy' on Keppel Corp

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Brokers are maintaining their "buy" calls on Keppel Corporation's stock, helped in part by possible future gains in the offshore and marine (O&M) industry and Keppel's property arm.

BROKERS are maintaining their "buy" calls on Keppel Corporation's stock, helped in part by possible future gains in the offshore and marine (O&M) industry and Keppel's property arm.

In their respective Friday morning notes, DBS Group Research adjusted its target price for Keppel's stock to S$9.00 - from S$9.10 previously - with OCBC Investment Research's fair value of S$8.70 not far off.

Keppel was up by 1.72 per cent, or S$0.12, to trade at S$7.08 as at 10.44am on Friday, placing it among the top 20 gainers on the Singapore Exchange.

Half of Keppel's historical land bank of around 6.5 million square metres is under development, which will progressively realise its RNAV (revalued net asset value) over the next three to five years, DBS wrote.

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Of its remaining undeveloped land bank, 40 per cent is for development projects in Tianjin Eco-city.

"The land was acquired in 2009 at less than one-tenth of the current land price and yet to be reflected in our RNAV. In addition, the ongoing portfolio rebalancing exercise will unlock values of completed projects," DBS said.

Broker OCBC, meanwhile, also noted Keppel's property segment remained the dominant contributor to net profit at S$603 million for the first fiscal half of 2018.

Keppel's diversified portfolio also means it is less affected by the recent property cooling measures compared to more Singapore-focused developers, as its land sales totalled to less than 10 per cent of its net profit.

The conglomerate's O&M segment should also see continued momentum, clinching S$1.2 billion worth of new orders in 2017, doubling 2016's orders.

DBS said that the roll should continue into 2018 with S$3 billion new orders assumed, while OCBC was more cautious in its outlook, noting that "the rig market continues to be weighed down by a supply overhang" and that the recovery of the sector will continue "at an incremental pace".

Key downside risks to the stock include the O&M segment faring worse than expected, contributing to the depletion of Keppel's order book, DBS highlighted.

In its latest earnings statement, Keppel's net profit surged 44.4 per cent to S$246.2 million from the previous year. For the three months ended June 30, revenue slipped 2 per cent to S$1.52 billion from the previous year.

It announced an interim dividend of 10 Singapore cents per share for the first half of the year, plus a special dividend of five cents per share to celebrate the company's 50th anniversary.