Its mothballing exercise is at the tail-end.
Keppel Corporation (Keppel) bagged $1b of orders with its order book at $3.9b, CIMB said.
According to an analysis, the worst is over for the offshore and marine (O&M) sector, and Keppel is at the tail-end of its mothballing exercise. CIMB has factored about $2b of new orders for 2018.
The bank now expects a 112% rebound in O&M net profit to $83m in 2019. Should the number of actual orders reach $3b in 2018, the net profit in 2019 could even be 35% higher than their forecast.
CIMB said Keppel's earnings margin weakened in 2016 and 2017 due to its depleting order book and weak order momentum.
Here's more from CIMB:
We think margin recovery would be on track from FY18F, potentially hitting 8% as KEP O&M executes the orders secured in FY17.
We expect to see some positive operating leverage from a leaner structure, having mothballed a few yards over the past two years.
Staff strength has also reduced from 36,000 at the beginning of 2015, to 16k currently.
We think negative revision cycle for O&M could be over. Re-rating catalysts could come from stronger order momentum and redevelopment plans of its Singapore landbank and Tianjin Eco City.
Our SOP valuation prices O&M at 1.5x 1H17 P/BV. If we benchmark to SMM’s 2x P/BV, our SOP would be higher at S$9.13. Downside risk is slower-than-expected completion of properties in China that de-rail the group’s earnings. KEP is our 12-month top pick within the sector, on the back of multiple growth drivers, including O&M, property and investments.
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