The price rout has gone too far, analysts say.
Investors have shunned Keppel Corp’s shares ever since the oil price crash began. As though adding insult to injury, the stock took a fresh beating last week on news of Sete Brasil’s looming bankruptcy. However, analysts from RHB Research noted that the steep decline may have finally gone too far.
RHB argued that at current valuations, it appears that Keppel’s offshore and marine (O&M) division is now valued below zero. RHB says that despite its current troubles, Keppel’s O&M segment still has a value of $5.56 per share.
Apart from that, RHB said that the absence of rig orders does not mean the absence of work for Keppel. The group can still snatch contracts for LNG vessels, floating production, storage and offloading (FPSO) conversions, fixed platforms, other specialised vessels, and vessel repairs.
“We expect the O&M division to continue generating cash and delivering ROEs well above the cost of equity. Even if O&M earnings halve this year, a 20% ROE still deserves a healthy premium to book value,” said RHB.
“The market is treating Keppel like a pure play on oil & gas, ignoring all the other divisions in this diversified conglomerate. Key short-term risk is a potential Sete Brasil bankruptcy, with a 40% impact on the orderbook, but this looks largely priced in,” the report added.
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