Here’s why there’s still light at the end of the tunnel for Keppel

Its net gearing is well below peers’.

With the possibility of oil prices bottoming out at the US$20 levels in 1Q16, analysts believe that the market may be overly bearish on Keppel Corp (Keppel).

According to a report by KGI Fraser, Keppel’s bond yields <4% and net gearing at 0.6x, which is well below its peers. This gives Keppel ample resources to make strategic acquisitions like in liquefied natural gas or in its asset management business.

Further, regression analysis between oil prices and Keppel’s share price indicates that Keppel should be trading >$6 at these oil prices. KGI Fraser believes that as oil prices stabilize, Keppel’s share price should behave accordingly.

Meanwhile, Keppel’s property segment posted better-than-expected 1Q16 results. In addition, take up rates for its China and Singapore residential properties were and should continue to be robust.

“We expect this segment to contribute 50-60% of the group’s earnings in FY16. Over the next three years, Keppel has 3000-4000 units to be launched p.a. in China and 2000-3000 units in Southeast Asia, notably Indonesia and Vietnam. As a result, property earnings is expected to be one of its key drivers,” KGI Fraser states.