Cost overruns, delays plaguing Keppel Corp infra projects

Company has taken quite the hit.

Keppel Corp had reportedly taken another provision on these delay-ridden infrastructure projects, resulting in losses for the segment. But management has advised that it expects current provisions will be sufficient and that “both projects are well on their way to completion," according to Barclays.

Here's more from Barclays:

We believe Keppel’s results for 2012 will have slightly positive implications for the stock price. Keppel delivered an adjusted net profit of S$1.9bn, up 28% y/y and essentially in line with our estimate. The company also announced a special dividend-in-specie of S$0.274/share on top of its full-year dividend of S$0.45, implying a full-year dividend yield of 6.4% (based on the closing price of Keppel REIT today). Operationally, the property segment surprised with a better-than-expected 4Q12 although this was offset by another provision made in its infrastructure segment. We reiterate our Equal Weight rating on the stock.

Key highlights

§ Special dividend surprise: With the delivery of a record year of earnings, the company announced a special dividend-in-specie of cS$0.274/share. Keppel shareholders will be awarded one share of Keppel REIT for every five shares held in Keppel. Based on Keppel REIT’s closing price of S$1.37 on 24 January 2013, it would imply a dividend of S$0.274/share. The purpose of the dividend is to reward its shareholders and at the same time, increase the free-float of Keppel REIT. Assuming the completion of this issue, Keppel REIT’s free float would increase to 34% from 23.2% as of 24 January 2013.

§ Robust offshore and marine margins; guidance reiterated: The segment delivered an operating margin of 13.5%, in line with our estimate and certainly better than those of any of its Korean or Chinese peers. Management also continued to highlight its guidance of “10-12%” for the medium term, which is typically conservative, in our view. Management continues to see enquiries for rigs at a high level and continues to be ‘participating in a number of projects’. With the company expected to deliver 22 rigs this year, we expect the performance of this segment to be positive.

§ Project delays and cost overruns continue: The company’s infrastructure segment projects in Doha and Greater Manchester continue to face cost overruns and project delays. As such, Keppel took another provision on these projects, resulting in losses for the segment. Management expects that the current provisions will be sufficient and that “both projects are well on their way to completion”.

§ Another strong quarter for property: As we expected, Keppel’s property segment delivered another strong quarter with the company recognising revenue for units sold at its Reflections project and the picking up of sales in China from its property subsidiary Keppel Land (not rated).

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