Keppel Corp

Keppel Corp > Buy

UOB Kay Hian, May 25

May 25 close: S$8.15

Target price: S$9.00

THE revised launch schedules of Keppel Corp have resulted in lower earnings for China of 8-14 per cent for 2018-19. Launches have been pushed into 2020, thereby lifting earnings from China by 30 per cent. Earnings in 2018 are no longer driven as much by projects in Wuxi as launch schedules are shifted to Tianjin and Chengdu.

The launch of Serangoon North in the second half of FY18 will partially offset the earnings weakness in China.

The Vietnamese property market remains hot. We expect Keppel to accelerate property launches in Vietnam to offset weakness in China.

Despite the slower launches in Wuxi projects, this was met with higher launches from V-City in Chengdu. Coupled with higher contributions from a buoyant Singapore market, as well as contributions from Indonesia, our 2018 net profit estimate falls to S$807 million (-1 per cent).

Our property RNAV fell from S$5.73 a share to S$5.54, as did our valuation for Keppel's O&M value due to the lower book value reported in 1Q18. Offsetting this is a reversal to net cash position for the holding company, resulting in our target price declining slightly to S$8.96. We leave our sum of the parts target price unchanged at S$9.00.

Maintain BUY although we recommend picking up on dips closer to S$8.00.

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