Broker's take: Phillip Securities lifts Keppel target price to S$7.07 on value from Keppel Capital

PHILLIP Securities has raised its target price for Keppel Corporation BN4 to S$7.07 from S$6.28 after incorporating Keppel Capital into its valuation model, it said in a research note on Tuesday (Oct 19).

The brokerage, which had maintained its "buy" call on the counter, noted that Keppel Capital has gained in significance to warrant a value assigned to it - at 10 times times the brokerage's estimates for FY2022 earnings.

Shares of Keppel were trading at S$5.51 as at 3.31pm on Tuesday, down S$0.02 or 0.4 per cent.

To better reflect the group's reporting segments going forward, senior research analyst Terence Chua said he valued the group based on the 4 new segments under its Vision 2030 plan - energy and environment, urban development, connectivity and asset management.

Apart from adding Keppel Capital to the valuation model, Chua also lowered his valuation for Keppel Infrastructure Holdings to 10 times the brokerage's estimates for FY2022 earnings from 12 times, due to its smaller value, and cut its valuation for M1 to 9 times from 12 times on uncertain outlook.

Additionally, he raised his holding-company discount to 20 per cent amid doubts on the group's ability to integrate all its different business units together.

Chua expects Keppel will surpass S$3 billion in asset monetisation ahead of its 3-year schedule, and exceed its S$3-5 billion target by the end of 2023.

He noted that Keppel Offshore and Marine (O&M) will likely gain from its settlement agreement with Sete Brasil over the terminated contracts for 6 oil drilling rigs. It is now free to explore various options to extract best value from the 4 rigs it had partially completed before work on them stopped in 2015.

Chua is also positive on discussions to merge Keppel O&M and Sembcorp Marine, as it provides better clarity on the fate of its O&M unit. He expects Keppel will be re-rated, once the overhang is removed and along with the planned divestment of its logistics unit.

As for its privatisation offer for Singapore Press Holdings (SPH), Keppel is likely well-positioned to enhance and unlock the value of SPH's portfolio as the 2 companies are already partners in businesses including M1, Prime US Reit and a data centre at Genting Lane, Singapore, the analyst said.

It should also streamline decision-making, operational control and allow the group to reap synergies, he added.

Chua expects the proposed transactions will likely be earnings-accretive for Keppel in the current financial year on a pro-forma basis, although there is no guarantee of completion by this year, while net gearing will likely not be much affected.

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