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Broker's take: OCBC maintains 'buy' call on Keppel Corp

OCBC Investment Research on Monday maintained its "buy" call on Keppel Corporation at a fair value of S$9.14.

The company's Q4 FY2014 results - a 9.1 per cent year-on-year rise in revenue to S$3.9 billion and a 6.1 per cent rise in net profit to S$725.9 million - are in line with estimates, and its current order book remains healthy, said analysts Low Pei Han and Carey Wong in a report.

Keppel Corporation on Friday launched an offer to take its subsidiary Keppel Land (KepLand) private. The base offer price is S$4.38, valuing KepLand at S$6.8 billion. If acceptance levels exceed the 90 per cent threshold, turning the offer into a compulsory acquisition, the offer price would be raised to S$4.60 per share, valuing KepLand at S$7.1 billion.

"We believe that this privatisation attempt has taken the market by surprise. Given the rich price offered for KepLand and the synergies for the combination may not be immediately apparent, there may be some near-term weakness in Keppel Corporation's share price. We incorporate a higher conglomerate discount of 10 per cent (up from five per cent) for the privatisation of KepLand, and after updating the market values of Keppel Corporation's listed entities, our fair value estimate drops from S$9.89 to S$9.14," said the report.

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"However, given the upside potential of 19 per cent (includes 5.8 per cent dividend yield), we maintain our 'Buy' rating on the stock; longer-term investors may wish to accumulate on dips," the report added.

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