Keppel Corp to veer toward margins expansion

3 routes to success.

According to CIMB, 3Q12 profit exceeded our numbers (S$335m) and consensus (S$273m), from stronger O&M and property. 9M12 formed 82% of our FY12 forecast.

Here's more from CIMB:

3Q12 O&M earnings of S$241m was 13% above our expected of S$213m, mainly from higher-than-expected revenue recognised (S$2.2bn, up 10% qoq). EBIT margin of 12.9% was in line. We see potential for margins expansion from several fronts.

Firstly, Keppel will deliver 19 jack-up rigs in 2013, mostly from its Singapore yards, with established track record in efficiency gains.

Secondly, given the tight deadline for the first unit of semi-subs for Sete Brasil (delivery in 2015), we believe Brazilian local content requirement could be relaxed, allowing a larger proportion of the work to be done in Singapore, hence higher margins.

Finally, execution of more repair and upgrade jobs of semi-subs, drillships and FPSOs in 2013 could also help to boost margins.

Sete Brasil to reach 20% in Aug 13, firm enquiries KEP has struck steel for the first semi-sub for Sete Brasil and expects to start recognising revenue and profits in Aug 13. The pace of new order enquiries remains active with a lot of bids already submitted. We estimate orders worth at least US$6bn up for grabs from now to 2013.

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