The recently announced plans include restructuring the O&M business into three parts – two temporary entities (“Rig Co” and “Dev Co”) to hold completed and uncompleted rigs respectively and one permanent operating entity (“Op Co”), as well as the divestment on the logistics business under Keppel T&T.
I personally think that this is positive news. Some research analysts suggest a possibility of a sale of the “Op Co” to a 3rd party later on, while the “Rig Co” and “Dev Co” winds down over time. If such a divestment were to take place, we may see a rerating to Keppel Corp’s valuations (as what we saw in Sembcorp Industries post the Sembcorp Marine demerger).
I think that investors should stop viewing Keppel primarily as an O&M company. The value of its O&M business is anywhere between 0-15% of Keppel Corp’s gross asset value, based on various analyst estimates. Hence, the decision to cut loss or hold the position may be better based on whether the investor has a bullish view on Keppel’s property-related business and the shifting focus into renewables.
Separately, a stock rerating for Keppel Corp may be possible if the firm’s divestment strategy of non-core assets is executed well, which then results in a higher return on assets. A distribution of capital back to shareholders from asset sales (via higher stock dividends or share buybacks) may also be the trigger for a stock rerating.
At the moment, the consensus view among research analysts is generally bullish (10 buys, 2 hold, 2 sell ratings) with an average target price of $6.08.
The recently announced plans include restructuring the O&M business into three parts – two temporary entities (“Rig Co” and “Dev Co”) to hold completed and uncompleted rigs respectively and one permanent operating entity (“Op Co”), as well as the divestment on the logistics business under Keppel T&T.
I personally think that this is positive news. Some research analysts suggest a possibility of a sale of the “Op Co” to a 3rd party later on, while the “Rig Co” and “Dev Co” winds down over time. If such a divestment were to take place, we may see a rerating to Keppel Corp’s valuations (as what we saw in Sembcorp Industries post the Sembcorp Marine demerger).
I think that investors should stop viewing Keppel primarily as an O&M company. The value of its O&M business is anywhere between 0-15% of Keppel Corp’s gross asset value, based on various analyst estimates. Hence, the decision to cut loss or hold the position may be better based on whether the investor has a bullish view on Keppel’s property-related business and the shifting focus into renewables.
Separately, a stock rerating for Keppel Corp may be possible if the firm’s divestment strategy of non-core assets is executed well, which then results in a higher return on assets. A distribution of capital back to shareholders from asset sales (via higher stock dividends or share buybacks) may also be the trigger for a stock rerating.
At the moment, the consensus view among research analysts is generally bullish (10 buys, 2 hold, 2 sell ratings) with an average target price of $6.08.