Keppel, SembMarine fall 3% by noon in wake of Keppel O&M's corruption fines

SHARES of offshore and marine groups Keppel Corporation and Sembcorp Marine (SembMarine) extended their losses from morning trade, falling more than 3 per cent by midday.

Keppel's stock lost 25 Singapore cents to trade at S$7.22 on a volume of 6.9 million, while SembMarine shares slid six Singapore cents to S$1.88 on a volume of 6.7 million. Both counters continued to be among the actives.

The sliding share prices follow Keppel Offshore and Marine's (O&M) disclosure on Saturday that it will pay US$422 million in fines as part of a global resolution for a corruption probe across three jurisdictions in Singapore, Brazil and the US.

This is a fresh blow to the beleaguered O&M sector, which is just about to turn a corner with oil prices stabilising in a healthier band for several months now.

Keppel O&M's revelation will put SembMarine under the spotlight. Sete Brasil was behind about US$10 billion of rig-building contracts that were awarded to Keppel O&M and SembMarine. The Sete Brasil contracts have come under review in a US Department of Justice investigation over alleged corrupt payments by a former agent of Keppel O&M in Brazil.

On Monday, CIMB Research maintained its "overweight" call on the O&M sector. It placed "add" calls on Keppel and SembMarine shares at price targets of S$8.58 and S$2.49 respectively.

"Keppel will make provisions for the amount in Q4 2017 and treat this as a one-off event. The final dividend proposal will be based on profit before the penalty. We think there is very little hope for a high special dividend to celebrate its 50th anniversary. We forecast total dividend per share (DPS) of S$0.22 (interim DPS: S$0.08 paid)," CIMB said.

It added that it estimates SembMarine is gunning for US$5 billion worth of sizeable non-rig projects which could stream in by 2018 and stronger-than-expected orders could catalyse the stock.

Another broker, KGI Securities, maintained its "buy" call on Keppel shares with a target price of S$8.04. "We reiterate our 'buy' call despite the latest setback as we believe downside may be limited on the back of its 15-year historical low valuations, and Keppel has a compelling growth story that leverages on synergies between its various businesses."

That said, KGI noted that it adjusted its sum-of-parts valuation to take into account the impact of the fine on Keppel O&M's net asset value, which in turn meant a 7 per cent dip in fair value from previous estimates.