It needs to continue recovery from a declining trend in contract wins.
Keppel Offshore and Marine (O&M) annual revenue could fall to around $2b to $4b in 2019 if the firm's contract flows do not meet expectation and its order book continue to shrink, DBS Equity Research said.
In 2017, Keppel O&M's contract wins recovered from a declining trend with new orders worth $2.1b in 2017, double its 2016 performance.
“The momentum should continue into 2018 with S$3bn new orders assumed,” DBS said.
Also read: Keppel's Q1 profits jumped 33.7% to $337.47m
Keppel O&M has already won around $840m worth of new contracts YTD whilst new orders are still expected from gas and floating production storage and offloading (FPSO) projects.
Meanwhile, DBS explained that the firm saw limited impacts from the government’s cooling measures as its residential exposure in Singapore is less than 10% of its revalued net asset value (RNAV).
“We continue to favour Keppel as a safer proxy to ride the O&M recovery, given its multi-pronged businesses,” DBS said. “Keppel’s decent dividend yield of 3% (based on 40% payout ratio) also lends support to its share price.”
DBS also noted that Keppel’s land bank of which half is under development could progressively yield the firm’s RNAV in the next three to five years. DBS thinks that the ongoing portfolio rebalancing exercise will unlock the firm's values of completed projects.
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