  Keppel Corporation


Global Research
22 October 2014
Keppel Corporation
Equities
Dissecting the order book
Singapore
Industrial, Diversified
Weak oil price raises scrutiny on order book and replenishment rate
Keppel needs to win ~S$6bn (US$4.7bn) new orders annually to replenish order books,
including deliveries from Brazil. At its Q314 results briefing, Keppel guided that
enquiries for drilling, production and support vessels remain strong. The stock market is
however less sanguine because the S$6bn hurdle, while not impossible, is a high bar,
and concerns surrounding global growth add uncertainty. On this issue, we believe: (1)
Keppel's order book should perk up soon, as it is in advanced negotiations with a
number of customers and partners. (2) At the same time, we share the market's
concerns that the pace of new orders is slowing. A complete halt in order momentum
is unlikely. But Kep's customers might place orders at a more leisurely pace, even
though they need solutions, if yard slots are not being booked up quickly.
A closer look at order book: Customer and product diversity helps
In this report we dissect Keppel's order book to explain our view that product and
customer diversity helps tide the group through choppy waters. For instance, orders
from customers with close government links form around 30% of orders annually. A
strong jack up market plays into the niche that Keppel is strongest in, but this is not its
only source of orders. The company expects its MOU with Pemex to materialise into a
firm contract in early 2015; this adds 6 jack ups (S$1.8bn orders) to its book. Keppel
also expects a job with Golar for an FLNGV by end 2014 (we est value US$735m).
Dividend outlook unchanged post Q314 results, implies 4.4% yield
Keppel has typically paid 50% of its earnings in dividends and management indicated
that this would be maintained, "barring unforeseen circumstances". Q314 earnings
were in line with ests, with M914 net profit at 75% of our full year forecast.
12-month rating
Buy
12m price target
S$11.02
Prior: S$12.85
Price
S$9.70
RIC: KPLM.SI BBG: KEP SP
Trading data and key metrics
52-wk range
S$11.33-9.46
Market cap.
Profitability/valuation
EBIT margin %
ROIC (EBIT) %
EV/EBITDA (core) x
P/E (UBS, diluted) x
Equity FCF (UBS) yield %
Net dividend yield %
1,806m (ORD)
Free float
78%
Avg. daily volume ('000)
3,410
Avg. daily value (m)
S$35.5
Common s/h equity (12/14E)
S$10.5bn
P/BV (12/14E)
1.7x
Net debt / EBITDA (12/14E)
0.7x
EPS (UBS, diluted) (S$)
UBS
0.85
12/14E
0.90
12/15E
0.92
12/16E
Cons.
0.86
0.92
0.98
Cheryl Lee, CFA
Analyst
cheryl.lee@ubs.com
+65-6495 5914
Valuation: based on sum of parts, price target cut to S$11.02 from S$12.85
Our sum of parts valuation has not changed significantly as we maintain our earnings
estimates. However, macro-driven uncertainty has risen and the risk of project delays
and order book falling short of our ests has increased, as we head towards 2015. We
believe a 10% discount to SOTP valuation is valid and trim our price target accordingly.
Highlights (S$m)
Revenues
EBIT (UBS)
Net earnings (UBS)
EPS (UBS, diluted) (S$)
DPS (S$)
Net (debt) / cash
S$17.5bn/US$13.9bn
Shares o/s
12/11
9,963
1,778
1,491
0.84
0.43
(1,279)
12/12
13,965
2,621
1,914
1.06
0.45
(2,736)
12/13
12,380
1,701
1,412
0.78
0.40
(1,090)
12/14E
13,123
1,532
1,542
0.85
0.43
(1,305)
12/15E
14,159
1,633
1,627
0.90
0.45
(978)
12/16E
14,507
1,628
1,645
0.92
0.45
(1,387)
12/17E
14,605
1,594
1,636
0.92
0.45
(1,770)
12/18E
14,682
1,699
1,647
0.93
0.46
(2,038)
12/11
17.8
28.2
8.8
12.1
(7.9)
4.3
12/12
18.8
28.0
7.1
10.1
0.1
4.2
12/13
13.7
17.1
10.2
14.0
(3.8)
3.7
12/14E
11.7
16.3
9.3
11.4
2.5
4.4
12/15E
11.5
16.7
8.6
10.8
5.7
4.6
12/16E
11.2
15.8
8.4
10.5
1.7
4.7
12/17E
10.9
14.4
8.3
10.5
1.8
4.7
12/18E
11.6
14.4
7.6
10.5
2.4
4.7
Source: Company accounts, Thomson Reuters, UBS estimates. Metrics marked as (UBS) have had analyst adjustments applied. Valuations: based on an average share price that year, (E): based on a
share price of S$9.70 on 22 Oct 2014 22:26 HKT
www.ubs.com/investmentresearch
This report has been prepared by UBS Securities Pte. Ltd. (Reg. No. 198500648C). ANALYST CERTIFICATION AND REQUIRED
DISCLOSURES BEGIN ON PAGE 16. UBS does and seeks to do business with companies covered in its research reports. As a
result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.
Investors should consider this report as only a single factor in making their investment decision.
Keppel's share price corrected sharply below the apparent psychological support
level of S$10, following concerns about global growth, potential cut in capex by oil
majors, bearish comments by Saudi representatives on oil prices. Other stocks
associated with offshore oil & gas have come under intensive selling pressure as
well. 27 November is a key date, as this is the next scheduled OPEC meeting.
9.0
Source: Bloomberg, UBS
Oct-14
Sep-14
Aug-14
Jul-14
Jun-14
May-14
Apr-14
Mar-14
Feb-14
Jan-14
2,700
9.5
70
60
9.0
Oct-14
2,800
80
Keppel (S$, LHS)
Sep-14
2,900
9.5
90
10.0
Aug-14
3,000
100
10.5
Jul-14
3,100
10.0
110
Jun-14
3,200
10.5
11.0
May-14
3,300
120
Apr-14
3,400
11.0
11.5
Mar-14
3,500
Keppel (LHS)
Feb-14
11.5
Figure 2: Keppel share price performance vs Brent Crude
Jan-14
Figure 1: Keppel share price performance vs FSSTI
Source: Bloomberg, UBS
Although an environment of sustained low oil prices places the economics of some
higher cost projects at risk, it is unrealistic to assume that all E&P activity, and
consequently orders to shipyards, to come to a halt. Of late, we have been asked
frequently whether the fall in oil prices mean all 'deep water' projects are at risk.
We highlight that water depth is only one aspect of a field's economics. While
some projects in deepwater West Africa and shallow water North Sea could be
affected, we believe projects in ultra deepwater Brazil are not because of the large
reserves. Outside of drilling and production units, rejuvenation of support vessels is
still ongoing. Meanwhile, Pemex continues to forge ahead with its E&P programme
and production growth targets: Recent legislation allows the private sector to
participate in Mexico's energy market.
Order book outlook
Keppel needs to secure around S$6bn (US$4.7bn) of new orders annually to
replenish the order book drawn down, including what is being delivered out of
Brazil. The company, when asked about order book prospects, remains very
sanguine. At its Q314 briefing, Keppel continued to guide that enquiries for
drilling, production and support vessels remains strong and the company remains
as optimistic as ever about being able to replenish order book. (Keppel as a matter
of policy does not guide on the potential annual value of order wins.)
The stock market is significantly less optimistic than Keppel on order book
prospects. The S$6bn hurdle, while not impossible, is a high bar, made more
difficult by the volatile macro situation (and ongoing concerns on global demand
and global growth).
We expect Keppel to continue converting enquiries to firm orders. At the same
time, we share the market's concerns that the pace of new orders is slowing. Even
if shipyard customers remain in need of solutions, there is less urgency to get
orders placed, especially if slots are not getting booked up quickly, and delays to
oil major's production plans are anticipated. For this reason, we have trimmed our
Keppel Corporation 22 October 2014
 2
price target. Even though we have not significantly cut earnings estimates and
valuation, we believe the market will seek a wider discount to Keppel's Sum of
parts valuation. This is discussed in a later section in this report.
As mentioned, in the near term, we expect Keppel to continue winning orders. The
group is in advanced discussion for a number of large orders.
Significant order book drivers include:
1)
MOU with Pemex. Negotiations between Keppel and Pemex to set up a
shipyard in Mexico are at an advanced stage. The shareholders'
agreement, which is likely to be signed in Q115, will include a contract to
construct six jack up rigs. Keppel's capex commitment for the first phase
of yard development is US$150m, which in our view is not excessive.
(Keppel's capex over 2012-13 was approx. US$280m/year) Construction
of the six jack ups rigs can commence shortly after the agreement is
inked. Local content on the first rig is 25%; thus the construction will
start in Singapore, with final assembly in Mexico. We estimate the
contract for the six rigs would amount to about US$1,440m
(S$1.8bn). Mexico has announced its intention to spend US$20-30bn on
capex annually over the next five years, and aims to lift production from
2.4mb/d currently to 3.0mb/d by 2018. Thus, we expect this JV to achieve
more than the initial order of six jack ups.
2)
Golar LNG Letter of Intent. Keppel has signed a letter of intent with
Golar LNG to perform the conversion of a second Moss LNG carrier into a
floating liquefaction vessel (FLNGV). Keppel expects to ink a firm contract
by the end of 2014. The work scope is similar to the first; and if so the
potential value of this is around US$735m (S$933m). In the future,
Keppel targets 2 FLNG conversions annually.
3)
Agreement with Titan Petrochemicals to manage shipyard in
Fujian, China. The deal is conditional on completion of the ongoing
financial restructuring of the Titan Petrochemicals Group. Progress has
been made since the agreement was announced in April. This deal opens
the door to China's large but closed Offshore market. (Link to note: Titan
Shipyard Note pubished April 2014)
4)
Ongoing discussions with State owned enterprise SOCAR of Azerbaijan
for a second drilling semisubmersible. Keppel has indicated that this is a
possibility but the parties have not come to agreement on terms. The first
unit was priced at US$800m. Keppel continues to entertain enquiries on
Floatels (US$200-300m/unit).
Keppel Corporation 22 October 2014
 3
Order book dissected
The following charts provide snapshots of Keppel's order book, broken down in
different ways. We provide both a snapshot of the net order book – ie orders to be
delivered over 2015-2016, as well as a year- by-year breakdown.
We have dissected the order book according to: (a) Profile of client: Private
company vs government linked company. (b) Type of vessel (Jack up, semisubs,
drillships, gas vessels) (c) Water depth and activity (drilling, production ).
The key takeaway from these charts is that the company has typically sourced its
orders from a wide range of sources. A strong jack up market plays into the niche
that Keppel is strongest in, but this is not its only source of orders. Meanwhile, we
observe that contracts from companies which are state owned, or which have
close government links, are significant contributors to order books each year. This
trend is unchanged, despite the sharp correction in crude oil prices in recent
weeks.
Client profile – Private ownership vs state owned
Figure 3: Composition of order book wins/ yr by profile of customer (%)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2010
2011
2012
State owned or strong govt links
2013
2014
Private corporates
Source: Company, UBS
Figure 4: Net order book – Revenue source by profile of customer (%)
Private
corporates
42%
State owned
or strong
govt links
58%
Source: Company, UBS
Keppel Corporation 22 October 2014
 4
Type of vessel
Figure 5: Composition of net order book by type of vessel (End 2014)
FPSO
4%
Gas
6%
Support vessel
Semisub & others
6%
1%
Jack up
43%
Semisub-Brazil
40%
Source: Company, UBS
Figure 6: % contribution of order wins/year by type of vessel (%)
100%
80%
60%
40%
20%
0%
-20%
-40%
2005
Jackup
2006
2007
Drilling semi Gas
2008
Floatel OSV
2009
Drillship
2010
2011
2012
2013
2014
Tender FPSO Production Others Cancelled
Source: Company, UBS
Figure 7: Value of order wins/year by type of vessel (S$m)
12000
10000
8000
6000
4000
2000
0
-2000
2005
Jackup
2006
Drilling semi
2007
Gas
2008
Floatel
OSV
2009
Drillship
2010
Tender
2011
FPSO
2012
Production
Others
2013
2014
Cancelled
Source: Company, UBS
Keppel Corporation 22 October 2014
 5
Water depth & activity type
Figure 8: Composition of net order book by water depth & activity (End 2014)
LNG
6%
Production Deepwater
6%
Support vessel
& others
1%
Drilling Shallow
water
43%
Drilling Deepwater
44%
Source: Company, UBS
Figure 9: % contribution of order wins/year by water depth and activity type (%)
100%
80%
60%
40%
20%
0%
-20%
-40%
2005
2006
Drilling - Shallow water
2007
2008
Drilling - Deepwater
2009
2010
2011
Production - Deepwater
2012
LNG
2013
Support vessel
2014
Others
Source: Company, UBS
Figure 10: Value of order wins/year by water depth and activity type (S$m)
12000
10000
8000
6000
4000
2000
0
-2000
2005
2006
Drilling - Shallow water
2007
2008
Drilling - Deepwater
2009
2010
2011
Production - Deepwater
LNG
2012
2013
Support vessel
2014
Others
Source: Company, UBS
Keppel Corporation 22 October 2014
 6
Figure 11: Deepwater production units and Floatels : Post shipyard destination
details
Production water depth
Contract date
Delivery year
Customer
Product
Field
Aug-12
2015
Floatel Intl
Accomo semi
Wheatstone (North West Shelf) 130
397
Aug-13
2015
Floatel Intl
Accomo semi
Ichthys
250
357
Mar-14
2015
SOFEC
FPSO
Tweneboa-Enyenra-Ntomme
1,500
65
Jul-14
2015
Bumi Armada
FPSO
Kraken (UK North Sea)
120
184
Feb-13
2015
Modec/ Toyo
FPSO
Carioca
2,100
150
Aug-12
2015 TBD
Petrobras
FPSO
Sapinhoa
3,000
591
Aug-12
2016 TBD
Petrobras
FPSO
Lula
2,000
591
(metres)
Est shipyard value S$m
Source: Company, UBS
Default, cancellation and write-off risk. The quality of Keppel's order book is
high, in our view, in terms of customer profile and the types of designs being built.
Orders for production platforms relate to projects already green-lit. Newbuild
orders are largely for Keppel's flagship KFELS rig designs, which are well known by
the market, and there have not been significant delays attributed to the shipyard.
In a 'worst case' scenario of a customer default, Keppel has received 20%
downpayment, and in our view should be able to find an alternate buyer for 80%
of the original contract price.
Valuation
Offshore division
We assume that Keppel will secure S$5.5-6.0bn (US$4.3-4.7bn) new orders
annually over 2014 to 2016. Q314 EBIT margin was close to 15%. We believe
these are not excessive; and that Keppel continues to stack up favourably versus its
competitors in the trade off between execution capability and lowest cost. In the
forecast period, EBIT margins remain around 14% on average each year. Longer
term, we adopt a pragmatic view of the industry and our valuation assumes a
sharp decline in revenue from year 6, as we assume that orders decline alongside a
weaker cycle.
Our terminal valuation for the Offshore business is based off a 2025E recurring
order book of S$2.8bn (US$2.2m) on 8% EBIT margin (M914: EBIT margin 14.7%,
Pretax margin 16.3%). We discount Keppel's FCF by 5.6% WACC (COE 8.8%) in
our valuation.
Sensitivity: If terminal margins were 100bps lower than our forecast of 8%, how
does this change valuations? In this scenario, we estimate that every 100bps
change in long term margin assumption results in a 8.5% cut to 2025E Offshore
earnings, and S$0.48/share cut to valuation.
Keppel Corporation 22 October 2014
 7
Group valuation
Figure 12: Keppel Corp 1-yr forward PE valuation
Figure 13: Keppel Corp 1-yr forward PBV valuation
Current P/E(x): 10.88; Mean: 11.4; -1STD: 8.59;
+1STD: 14.21
35
Current P/BV (x): 1.57; Mean: 2.08; -1STD: 1.32;
+1STD: 2.83
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
30
25
20
15
10
5
Dec-90
Dec-91
Dec-92
Dec-93
Dec-94
Dec-95
Dec-96
Dec-97
Dec-98
Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-90
Dec-91
Dec-92
Dec-93
Dec-94
Dec-95
Dec-96
Dec-97
Dec-98
Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
0
Source: UBS estimates
Source: UBS estimates
Keppel Corp currently trades on a valuation of 10.9x 1-year forward earnings and
1.6x price to book value. We believe that the P/BV valuation is justified by Keppel's
15% ROE vs its COE of 7.5%. Consensus EPS momentum has been weak since the
start of the year, but we think that the decent Q3 results should arrest the trend.
Figure 14: Keppel Corp Consensus EPS estimates
1.10
FY14
FY15
FY16
1.05
1.00
0.95
0.90
Oct-14
Sep-14
Aug-14
Jul-14
Jun-14
May-14
Apr-14
Mar-14
Jan-14
Feb-14
Dec-13
Nov-13
Oct-13
Sep-13
Jul-13
Aug-13
Jun-13
Apr-13
May-13
Feb-13
Mar-13
Jan-13
0.85
Source: Bloomberg
Dividend support continues. Dividends should continue to provide support to
share price. Keppel has typically paid 50% of its earnings in dividends and we see
little reason for change in the coming years. Group net gearing is low, at around
19%; most of the debt relates to 54% owned subsidiary Keppel Land.
Management indicated that the payment rate would be maintained this year,
"barring unforeseen circumstances". We forecast dividend of S$0.42, which
translates to a yield of 4.3%.
Cutting price target to S$11.02 from S$12.85. Our sum of parts valuation has
not changed significantly as our earnings estimates have been maintained.
However, we note that uncertainty relating to the order book has risen and the
risk of project delays and order book falling short of our estimates has increased in
our view, as we head towards 2015. We believe it is appropriate to apply a
discount to Keppel's sum of parts valuation to set our price target, and believe a
10% discount to RNAV is valid. Accordingly, we cut our price target from S$12.85
to S$11.02.
Keppel Corporation 22 October 2014
 8
Figure 15: SOTP
Business / Details
Value (S$ m)
Basis
15,133
DCF assuming S$6bn orders 2014-16, lower LT rev and margins fr 2019
2,709
Market price
Offshore and Shiprepair
Keppel Land
K-Reit
4
Market price
594
Project at NAV & capital gain to KepCorp
Tianjin eco city
434
Estimate of project NAV to Keppel Corp excluding Keppel Land share
Keppel T&T
740
Market price; M1 stake held through KPTT
1,252
Cogen plant, Incineration, other power assets, KIE, KGT
142
Market valuation
Harbour project
Infrastructure
K1 Ventures
Dyna-Mac Holdings
KrisEnergy
Others
Total firm value
95
Market valuation
253
Market valuation
400
Estimated book value
21,757
Add: Parent cash / (debt)
500
Total equity value
Cash held directly by Keppel Corp excluding est net customer deposits
22,257
Number of shares (m)
1,817
SOTP per share value (S$)
12.25
Price target at 10% discount to SOTP value
11.02
Source: UBS estimates
The Singapore market trades on a 1 year forward PE of 13.0x, or about 6% below
its 13.8x mean. Meanwhile, 2014/2015E market EPS has been cut by around
1.7%/4.3% since the start of the year and we believe pace of downgrades has
slowed. We think our price target implying 14% upside from the 21 Oct 2014
close of S$9.70 looks fair, in this respect.
Figure 16: Singapore market valuations MSCI 1-yr forward (x)
2.6
2.4
2.2
2.0
1.8
1.6
1.4
1.2
1.0
MSCI SINGAPORE - 12MTH FWD P/BPS
+1SD = 1.8
Jul-14
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jul-10
MEAN = 1.6
Jan-11
Jul-09
Jan-10
Jul-08
Jan-09
Jul-07
Jan-08
Jul-06
Jan-07
Jul-05
Jan-06
Jul-04
Jan-05
Jan-04
0.8
-1SD = 1.3
Source: UBS Quantitative Research, MSCI, IBES estimates
Keppel Corporation 22 October 2014
 9
Figure 17: MSCI Singapore Change in 2014E EPS
consensus estimates (Jan 2013 = 100)
Figure 18: MSCI Singapore Change in 2015E EPS
consensus estimates (Jan 2013 = 100)
102
100
98
96
94
92
90 MSCI consensus
88 EPS estimates
86 (Jan 2013 = 100)
84
105
Source: MSCI, IBES, UBS Quantitative Research
Keppel Corporation 22 October 2014
Singapore - EPS15
100
95
90
85
80
75
MSCI consensus EPS
estimates
(Jan 2013 = 100)
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Singapore -EPS14
Source: MSCI, IBES, UBS Quantitative Research
 10
Figure 19: Q314 results summary and highlights
YE 31 Dec S$m
Q312
Q412
Q113
Q213
Q313
Q413
Q114
Q214
Q314 Comments on current & previous quarters
Revenue
3219
2999
2759
3076
2947
3599
2996
3176
3185
Offshore
2223
1711
1702
1818
1536
2071
1919
2061
2199 Q314: Non ord bk revenue was S$338m (LT ave: S$365m);
S$1.86bn of order book drawn down; high vs previous quarters..
Infra
680
715
757
850
877
975
736
761
762
Property
305
560
298
400
532
538
330
348
218
10
13
2
8
3
14
12
6
5
Operating profit
433
633
397
423
568
746
415
467
565
Offshore
287
232
239
257
253
310
280
303
329 Q314: 1st/2nd/3rd semisub for Sete Brazil is 75% / 30% / close
Invts
to 20% completed. Q114: Operating profit includes S$6.9m gains
from sale of Kazakhstan shipyard. Q413: Included S$16m
provision writeback.
Infra
23
-48
65
48
46
-90
48
56
57 Q314: Doha North on track to complete next year. No additional
provisions. Q413: Large provisions on Qatar and UK projects. Size
of provisions not disclosed, but mgt notes "cogen performed very
well", which suggests provisions of at least S$150m. Q412:
Provisions on 2 EPC projects, we est ~S$100m in total: Doha
North Sewage Treatment Works at Qatar (Challenging conditions)
and Greater Manchester energy from waste project (delays).
Property
118
438
76
118
263
524
88
81
-3
12
10
5
-1
10
-1
28
Net profit excl EI
337
305
331
347
403
332
339
406
414 Q314: M914 net profit is 75% of our full year expectations.
Offshore
241
212
208
237
215
270
230
271
252 Q314: No major one-off items. 3rd Sete Brazil unit and Golar LNG
Invts
155 Q314: S$60m divestment gains from equity plaza.
24 Q314: S$23m writeback.
Offshore better than expected, property weaker than expected.
unit likely to commence initial recognition in Q413. Pemex
contract expected in Early 2015. Q114: Includes S$6.9m from sale
of Kazakhstan shipyard. Associate income fell, as prev Qs
included contributions from FloaTEC JV, from variation orders on
P-61 job. Q413: Excl S$15m provision writebacks following
subsidiary sale.
Infra
14
-72
27
36
34
-111
32
35
38 Q314: No new comments
Property
62
154
81
66
139
156
62
67
92 Link to Keppel Land Q314 report
Invts
20
12
15
7
15
17
14
33
33 Q314: S$23m impairment writeback from previously impaired K1
Ventures invt. "Continuation" of writeback from Q214. Q214:
S$20.9m impairment writebacks.
Offshore
Op margin
12.9%
13.5%
14.1%
14.2%
16.5%
14.9%
14.6%
14.7%
14.9% 2014E: 14.2% 2013:14.9%; 2012: 13.7%; 2011:23.1%
Order book
13070
12824
13135
13056
13649
14236
14385
14082
12691 Q314: Pemex agreement in early 2015. 6 jack ups: Initial
construction in Singapore. 2nd Golar FLNG unit: LOI received,
hope to ink formal agreement by year end. Open to taking a small
stake but nothing is determined yet. SOCAR remains interested in
semi rig. 7 options outstanding. Q114: SOCAR is keen on another
semi, but KEP wants a clear understanding of rig specifications
before proceeding. Q113: Options for Naftoghaz not exercised as
Board did not like terms.
Source: Company data and UBS
Keppel Corporation 22 October 2014
 11
Keppel Corporation 22 October 2014
 12
Keppel Corporation (KPLM.SI)
12/11
9,963
3,690
1,986
(209)
1,778
264
0
16
1,135
3,193
(641)
2,553
0
(832)
0
1,721
1,491
0.0
12/12
13,965
4,399
2,832
(211)
2,621
286
0
26
323
3,256
(501)
2,756
0
(518)
0
2,237
1,914
15.4
12/13
12,380
3,785
1,943
(242)
1,701
640
0
19
434
2,794
(397)
2,396
0
(551)
0
1,846
1,412
14.2
12/14E
13,123
3,378
1,781
(250)
1,532
603
0
16
0
2,150
(431)
1,719
0
(178)
0
1,542
1,542
20.0
% ch
6.0
12/11
0.84
0.97
0.84
0.43
0.96
4.15
1,778.59
12/12
1.06
1.24
1.06
0.45
1.18
5.16
1,797.61
12/13
0.78
1.02
0.78
0.40
0.91
5.37
1,807.97
12/14E
0.85
0.85
0.85
0.43
0.99
5.80
1,807.97
% ch
Balance sheet (S$m)
Cash and equivalents
Other current assets
Total current assets
Net tangible fixed assets
Net intangible fixed assets
Investments / other assets
Total assets
Trade payables & other ST liabilities
Short term debt
Total current liabilities
Long term debt
Other long term liabilities
Preferred shares
Total liabilities (incl pref shares)
Common s/h equity
Minority interests
Total liabilities & equity
12/11
3,598
8,651
12,249
2,716
0
9,519
24,483
7,808
808
8,616
4,069
607
0
13,292
7,390
3,801
24,483
12/12
4,472
10,134
14,607
3,337
0
11,226
29,171
8,059
1,006
9,064
6,202
326
0
15,592
9,246
4,332
29,171
12/13
6,010
11,948
17,957
3,798
0
8,300
30,056
8,825
517
9,342
6,583
442
0
16,367
9,701
3,988
30,056
12/14E
5,795
11,887
17,683
4,549
0
8,615
30,846
8,796
517
9,313
6,583
475
0
16,372
10,484
3,991
30,846
% ch
Cash flow (S$m)
Net income (before pref divs)
Depreciation & amortisation
Net change in working capital
Other operating
Operating cash flow
Tangible capital expenditure
Intangible capital expenditure
Net (acquisitions) / disposals
Other investing
Investing cash flow
Equity dividends paid
Share issues / (buybacks)
Other financing
Change in debt & pref shares
Financing cash flow
Cash flow inc/(dec) in cash
FX / non cash items
Balance sheet inc/(dec) in cash
12/11
1,721
209
(2,290)
(246)
(607)
(802)
0
(205)
(248)
(1,255)
(724)
99
333
(1,185)
12/12
2,237
211
(1,621)
0
827
(801)
0
(60)
(209)
(1,069)
(789)
82
(346)
874
12/13
1,846
242
(732)
(1,207)
150
(903)
0
638
(205)
(471)
(669)
40
2,133
1,537
12/14E
1,542
250
32
(378)
1,446
(1,000)
0
0
274
(726)
(759)
0
(175)
(214)
% ch
Income statement (S$m)
Revenues
Gross profit
EBITDA (UBS)
Depreciation & amortisation
EBIT (UBS)
Associates & investment income
Other non-operating income
Net interest
Exceptionals (incl goodwill)
Profit before tax
Tax
Profit after tax
Preference dividends
Minorities
Extraordinary items
Net earnings (local GAAP)
Net earnings (UBS)
Tax rate (%)
Per share (S$)
EPS (UBS, diluted)
EPS (local GAAP, diluted)
EPS (UBS, basic)
Net DPS (S$)
Cash EPS (UBS, diluted)1
Book value per share
Average shares (diluted)
-10.8
-8.3
3.0
-9.9
-5.8
-19.5
-
-23.0
-8.4
-28.3
67.7
-
-16.5
9.2
40.9
9.2
-16.5
9.2
6.6
8.3
8.0
0.0
-3.6
-0.5
-1.5
19.8
3.8
2.6
-0.3
0.00
-0.3
0.0
7.6
-
0.0
8.1
0.1
2.6
-16.5
3.0
68.7
NM
-10.7
-
-54.2
-13.6
-
-
-
12/15E
14,159
3,617
1,890
(257)
1,633
610
0
(2)
0
2,241
(484)
1,757
0
(130)
0
1,627
1,627
21.6
% ch
7.9
12/15E
0.90
0.90
0.90
0.45
1.04
6.27
1,807.97
% ch
12/15E
6,122
11,792
17,913
5,292
0
8,930
32,135
9,221
517
9,738
6,583
528
0
16,849
11,340
3,946
32,135
% ch
12/15E
1,627
257
520
(413)
1,991
(1,000)
0
0
281
(719)
(771)
0
(175)
326
% ch
7.1
6.1
3.0
6.6
1.2
-
4.2
-12.3
2.2
26.8
-
5.5
5.5
7.8
5.5
5.5
5.5
5.5
5.2
8.2
0.0
5.6
-0.8
1.3
16.3
3.7
4.2
4.8
0.00
4.6
0.0
11.2
-
2.9
8.2
-1.1
4.2
5.5
3.0
NM
-9.4
37.7
0.0
-
0.9
-1.5
0.00
-
-
-
12/16E
14,507
3,669
1,893
(265)
1,628
618
0
(10)
0
2,236
(498)
1,739
0
(94)
0
1,645
1,645
22.2
12/17E
14,605
3,660
1,867
(273)
1,594
627
0
(29)
0
2,192
(507)
1,684
0
(48)
0
1,636
1,636
23.2
12/18E
14,682
3,768
1,980
(281)
1,699
636
0
(38)
0
2,297
(579)
1,718
0
(71)
0
1,647
1,647
25.2
12/16E
0.92
0.92
0.92
0.45
1.07
6.84
1,778.59
12/17E
0.92
0.92
0.92
0.45
1.07
7.30
1,778.59
12/18E
0.93
0.93
0.93
0.46
1.08
7.77
1,778.59
12/16E
5,713
12,057
17,769
6,027
0
9,246
33,042
9,364
517
9,881
6,583
542
0
17,006
12,171
3,865
33,042
12/17E
5,330
12,131
17,461
6,754
0
9,564
33,779
9,404
517
9,921
6,583
552
0
17,056
12,985
3,739
33,779
12/18E
5,062
12,189
17,251
7,472
0
9,883
34,607
9,435
517
9,952
6,583
624
0
17,159
13,814
3,635
34,607
12/16E
1,645
265
(122)
(497)
1,291
(1,000)
0
0
288
(712)
(813)
0
(175)
(409)
12/17E
1,636
273
(34)
(555)
1,320
(1,000)
0
0
295
(705)
(823)
0
(175)
(382)
12/18E
1,647
281
(27)
(480)
1,421
(999)
0
0
303
(696)
(818)
0
(175)
(268)
Source: Company accounts, UBS estimates. (UBS) metrics use reported figures which have been adjusted by UBS analysts.1Cash EPS (UBS, diluted) is calculated using UBS net income adding back depreciation and
amortization.
Keppel Corporation 22 October 2014
 13
Keppel Corporation (KPLM.SI)
Valuation (x)
P/E (local GAAP, diluted)
P/E (UBS, diluted)
P/CEPS
Equity FCF (UBS) yield %
Net dividend yield (%)
P/BV x
EV/revenues (core)
EV/EBITDA (core)
EV/EBIT (core)
EV/OpFCF (core)
EV/op. invested capital
12/11
10.4
12.1
10.6
(7.9)
4.3
2.4
1.7
8.8
9.8
10.0
2.8
12/12
8.7
10.1
9.1
0.1
4.2
2.1
1.4
7.1
7.7
7.8
2.2
12/13
10.7
14.0
11.9
(3.8)
3.7
2.0
1.6
10.2
11.7
11.7
2.0
12/14E
11.4
11.4
9.8
2.5
4.4
1.7
1.3
9.3
10.9
10.9
1.8
12/15E
10.8
10.8
9.3
5.7
4.6
1.5
1.1
8.6
9.9
9.9
1.7
12/16E
10.5
10.5
9.0
1.7
4.7
1.4
1.1
8.4
9.8
9.7
1.5
12/17E
10.5
10.5
9.0
1.8
4.7
1.3
1.1
8.3
9.7
9.5
1.4
12/18E
10.5
10.5
8.9
2.4
4.7
1.2
1.0
7.6
8.8
8.7
1.3
Enterprise value (S$m)
Market cap.
Net debt (cash)
Buy out of minorities
Pension provisions/other
Total enterprise value
Non core assets
Core enterprise value
12/11
17,872
282
3,801
0
21,955
(4,543)
17,412
12/12
19,330
2,007
4,332
0
25,670
(5,492)
20,178
12/13
19,700
1,913
3,988
0
25,600
(5,747)
19,853
12/14E
17,522
1,197
3,991
0
22,710
(6,062)
16,648
12/15E
17,522
1,141
3,946
0
22,609
(6,377)
16,232
12/16E
17,522
1,183
3,865
0
22,570
(6,693)
15,877
12/17E
17,522
1,183
3,739
0
22,443
(7,011)
15,433
12/18E
17,522
1,183
3,635
0
22,339
(7,330)
15,009
Growth (%)
Revenue
EBITDA (UBS)
EBIT (UBS)
EPS (UBS, diluted)
Net DPS
12/11
9.0
13.8
14.2
12.8
12.6
12/12
40.2
42.6
47.4
27.0
4.7
12/13
-11.3
-31.4
-35.1
-26.7
-11.1
12/14E
6.0
-8.3
-9.9
9.2
6.6
12/15E
7.9
6.1
6.6
5.5
5.5
12/16E
2.5
0.2
-0.3
2.8
1.1
12/17E
0.7
-1.4
-2.1
-0.6
-0.6
12/18E
0.5
6.1
6.6
0.7
0.7
Margins & Profitability (%)
Gross profit margin
EBITDA margin
EBIT margin
Net earnings (UBS) margin
ROIC (EBIT)
ROIC post tax
ROE (UBS)
12/11
37.0
19.9
17.8
15.0
28.2
28.2
21.6
12/12
31.5
20.3
18.8
13.7
28.0
22.7
23.0
12/13
30.6
15.7
13.7
11.4
17.1
13.2
14.9
12/14E
25.7
13.6
11.7
11.7
16.3
11.8
15.3
12/15E
25.5
13.3
11.5
11.5
16.7
11.8
14.9
12/16E
25.3
13.0
11.2
11.3
15.8
11.0
14.0
12/17E
25.1
12.8
10.9
11.2
14.4
9.7
13.0
12/18E
25.7
13.5
11.6
11.2
14.4
9.4
12.3
Capital structure & Coverage (x)
Net debt / EBITDA
Net debt / total equity %
Net debt / (net debt + total equity) %
Net debt/EV
Capex / depreciation %
Capex / revenue %
EBIT / net interest
Dividend cover (UBS)
Div. payout ratio (UBS) %
12/11
0.6
11.4
10.3
7.3
NM
8.0
NM
1.9
51.3
12/12
1.0
20.1
16.8
13.6
NM
5.7
NM
2.4
42.3
12/13
0.6
8.0
7.4
5.5
NM
7.3
NM
2.0
51.2
12/14E
0.7
9.0
8.3
7.8
NM
7.6
NM
2.0
50.0
12/15E
0.5
6.4
6.0
6.0
NM
7.1
NM
2.0
50.0
12/16E
0.7
8.7
8.0
8.7
NM
6.9
NM
2.0
49.2
12/17E
0.9
10.6
9.6
11.5
NM
6.8
55.0
2.0
49.2
12/18E
1.0
11.7
10.5
13.6
NM
6.8
44.2
2.0
49.2
Revenues by division (S$m)
Others
Total
12/11
9,963
9,963
12/12
13,965
13,965
12/13
12,380
12,380
12/14E
13,123
13,123
12/15E
14,159
14,159
12/16E
14,507
14,507
12/17E
14,605
14,605
12/18E
14,682
14,682
EBIT (UBS) by division (S$m)
Others
Total
12/11
1,778
1,778
12/12
2,621
2,621
12/13
1,701
1,701
12/14E
1,532
1,532
12/15E
1,633
1,633
12/16E
1,628
1,628
12/17E
1,594
1,594
12/18E
1,699
1,699
Source: Company accounts, UBS estimates. (UBS) metrics use reported figures which have been adjusted by UBS analysts.
Keppel Corporation 22 October 2014
 14
Forecast returns
Forecast price appreciation
Forecast dividend yield
Forecast stock return
Market return assumption
Forecast excess return
+13.6%
4.4%
+18.0%
7.4%
+10.6%
Statement of Risk
Earnings and price objective could be at risk if the expected wins from O&M do
not materialize or if the order book is poorly executed. Profits would also be
affected by policies to curb demand for property in markets that Keppel Land is
present in, namely Singapore, China, India and Vietnam. Its cogeneration plant is a
merchant plant and is thus exposed to fluctuating tariffs.
Keppel Corporation 22 October 2014
 15
Required Disclosures
This report has been prepared by UBS Securities Pte. Ltd., an affiliate of UBS AG. UBS AG, its subsidiaries, branches and
affiliates are referred to herein as UBS.
For information on the ways in which UBS manages conflicts and maintains independence of its research product; historical
performance information; and certain additional disclosures concerning UBS research recommendations, please visit
www.ubs.com/disclosures. The figures contained in performance charts refer to the past; past performance is not a reliable
indicator of future results. Additional information will be made available upon request. UBS Securities Co. Limited is licensed
to conduct securities investment consultancy businesses by the China Securities Regulatory Commission.
Analyst Certification: Each research analyst primarily responsible for the content of this research report, in whole or in
part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed
accurately reflect his or her personal views about those securities or issuers and were prepared in an independent manner,
including with respect to UBS, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to
the specific recommendations or views expressed by that research analyst in the research report.
UBS Investment Research: Global Equity Rating Definitions
12-Month Rating
Definition
Coverage1
IB Services2
Buy
FSR is > 6% above the MRA.
47%
34%
Neutral
FSR is between -6% and 6% of the MRA.
42%
28%
Sell
FSR is > 6% below the MRA.
11%
21%
Short-Term Rating
Definition
Coverage3
IB Services4
Buy
Stock price expected to rise within three months from the time
the rating was assigned because of a specific catalyst or event.
less than 1%
less than 1%
Sell
Stock price expected to fall within three months from the time
the rating was assigned because of a specific catalyst or event.
less than 1%
less than 1%
Source: UBS. Rating allocations are as of 30 September 2014.
1:Percentage of companies under coverage globally within the 12-month rating category. 2:Percentage of companies within
the 12-month rating category for which investment banking (IB) services were provided within the past 12 months.
3:Percentage of companies under coverage globally within the Short-Term rating category. 4:Percentage of companies
within the Short-Term rating category for which investment banking (IB) services were provided within the past 12 months.
KEY DEFINITIONS: Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend
yield over the next 12 months. Market Return Assumption (MRA) is defined as the one-year local market interest rate
plus 5% (a proxy for, and not a forecast of, the equity risk premium). Under Review (UR) Stocks may be flagged as UR
by the analyst, indicating that the stock's price target and/or rating are subject to possible change in the near term, usually
in response to an event that may affect the investment case or valuation. Short-Term Ratings reflect the expected nearterm (up to three months) performance of the stock and do not reflect any change in the fundamental view or investment
case. Equity Price Targets have an investment horizon of 12 months.
EXCEPTIONS AND SPECIAL CASES: UK and European Investment Fund ratings and definitions are: Buy: Positive
on factors such as structure, management, performance record, discount; Neutral: Neutral on factors such as structure,
management, performance record, discount; Sell: Negative on factors such as structure, management, performance
record, discount. Core Banding Exceptions (CBE): Exceptions to the standard +/-6% bands may be granted by the
Investment Review Committee (IRC). Factors considered by the IRC include the stock's volatility and the credit spread of the
respective company's debt. As a result, stocks deemed to be very high or low risk may be subject to higher or lower bands
as they relate to the rating. When such exceptions apply, they will be identified in the Company Disclosures table in the
relevant research piece.
Research analysts contributing to this report who are employed by any non-US affiliate of UBS Securities LLC are not
registered/qualified as research analysts with the NASD and NYSE and therefore are not subject to the restrictions contained
in the NASD and NYSE rules on communications with a subject company, public appearances, and trading securities held by
a research analyst account. The name of each affiliate and analyst employed by that affiliate contributing to this report, if
any, follows.
UBS Securities Pte. Ltd.: Cheryl Lee, CFA.
Keppel Corporation 22 October 2014
 16
Company Disclosures
Company Name
Reuters
12-month rating
Short-term rating
Price
Price date
Keppel Corporation
KPLM.SI
Buy
N/A
S$9.70
22 Oct 2014
Source: UBS. All prices as of local market close.
Ratings in this table are the most current published ratings prior to this report. They may be more recent than the stock
pricing date
Unless otherwise indicated, please refer to the Valuation and Risk sections within the body of this report.
Keppel Corporation (S$)
Stock Price (S$)
Price Target (S$)
15.0
10.0
5.0
01-Oct-14
01-Jul-14
01-Apr-14
01-Jan-14
01-Oct-13
01-Jul-13
01-Apr-13
01-Jan-13
01-Oct-12
01-Jul-12
01-Apr-12
01-Jan-12
01-Oct-11
01-Jul-11
01-Apr-11
01-Jan-11
01-Oct-10
01-Jul-10
01-Apr-10
01-Jan-10
01-Oct-09
0.0
Buy
Source: UBS; as of 22 Oct 2014
Keppel Corporation 22 October 2014
 17
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