Expansion Into China; Bullish On Keppel Corp

1. Keppel Corp recently announced an agreement with Titan Petrochemicals to manage a shipyard in China, marking a foray into the fairly sheltered offshore industry there.

2. Strategic move similar to Keppel’s other ventures into Mexico and the Middle East.

3. Strong order book continues to underpin expectations of top and bottom line growth at Keppel Corp.

Last week, Keppel Corporation (Keppel) announced that they have reached an agreement with China’s Titan Petrochemicals Group (Titan). The agreement will enable the group’s offshore and marine sector to extend its near market and near customer strategy into China.

According to the agreement, Keppel will manage Titan’s shipyard in Quanzhou, China for 30 years. As a condition for the management agreement, Keppel will assist Titan in its debt restructuring and help the firm resume trading in the Hong Kong Stock Exchange.

The shipyard will be expected to undertake projects using Keppel’s proprietary designs and will have four ultra-large and wide docks which are capable of ship repair and conversion and construction of offshore rigs. All projects of the joint venture will be under the supervision of Keppel and measures will be taken to protect its designs.

Keppel’s new partnership with Titan will assist the group to tap into the Chinese Offshore market which has been monopolized by state-owned yards.

The foray will be a long-term strategic move similar to its expansion into Mexico and the Middle East in recent years. This agreement is not expected to have any material impact to Keppel’s current financial year.

Looking at the group’s near term performance, Keppel has a strong order book with earnings visible to 2019. As at end December 2013, Keppel’s order book stands at $14.2 billion with another US $1.5 billion (our estimate) worth of orders won year-to-date.

In view of Keppel’s short and long term prospect, analysts from various research houses are bullish towards the stock as they give it an average potential upside of $1.18.

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