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Quick takes: Analysts react to Keppel Corp's privatisation bid for Keppel Land
ANALYSTS weighed in on Keppel Corporation's move to privatise its real estate subsidiary Keppel Land (KepLand) as both counters resumed trading on Monday.
Maybank Kim Eng Research maintained its "hold" rating for Keppel Corporation on the news, with a target price of S$8.60.
"We are neutral on this. Other than immediate accretion to EPS, NAV and ROE, synergies from three very different core businesses - offshore & marine, property and infrastructure - are not readily apparent. We believe investors would not settle for the diversification argument," the report said.
"Arguably, a soft property market makes privatisation cheaper now, but it also works against crystallising value in the near term. While KepCorp has hinted that making further attractive property investments may be easier with a fully-controlled KepLand and lower capital costs, no concrete plans were communicated. We do not think there would be positive value creation in the short term."
The rating, said Nomura analysts Wee Lee Chong and Abhishek Nigam, is due to the weak new orders outlook owing to a global oversupply of jackup rigs in 2015, and the potential consensus downgrades for Keppel Corporation's O&M earnings in FY2015/2016.
"We are reviewing our (O&M) earnings forecasts and target price for Keppel Corporation, with downside risk potential. This is due to the lower than expected net tangible assets and order book for Keppel Corporation's O&M division as of end-2014, and the potential increase in conglomerate valuation discount given the re-deployment of funds to acquire additional shares in KepLand vs the typical higher valuations given to the O&M business," the analysts said in a report.
"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," the report said.
"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."
KepLand, however, saw its "buy" rating maintained by Nomura. Its research analyst, Min Chow Sai said that Keppel Corporation's cash offer price of S$4.38 per share, or S$4.60 per share if the privatisation is successful, is in line with Nomura's target price of S$4.43 per share.
"We recommend shareholders to take up the offer," he said.
An AMFraser report also had a "buy" rating on KepLand, with a target price of S$4.60, up from S$4.55 previously. "We have highlighted the deep value KepLand was trading at in view of its well-diversified operations and its active capital recycling in recent years. At S$4.60, the offer price represents a 26.0 per cent upside to KepLand's last closing price, and an attractive 31 per cent premium to its last one-month volume-weighted average price," the report said.
As of 12.16pm on Monday, Keppel Corporation's counter was up 11 Singapore cents to S$8.21, while KepLand's counter 90 Singapore cents to S$4.55.