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Saturday, 24 November 2012

Keppel new exotic orders to boost margin expansion by 2013

After Kazakhstan and Azerbaijan, Keppel’s latest potential order will come from Ukraine.

Keppel FELS has been selected by Ukraine’s National Joint-Stock Company, Naftogaz, as the winner of a tender to construct two semi-submersible drilling rigs. It will be entering into further contract negotiations with Naftogaz. A further announcement on the key terms of the contract (including price and delivery schedule) will be made when the contract is signed.

CIMB notes that according to industry sources, the other contenders for the contract include Latvia’s Rigas Kugu Buvetava (with its US$1.4bn bid), Belize’s Magic Worldwide (US$1.5bn) and Belize’s Aida Holding (US$1.4bn). Keppel’s bid was US$1.226bn.

"Apart from pricing, we believe Keppel’s successful track record in delivering two jack-up rigs for Naftogas (operated by Chernomornaftogaz) in Jun 12 could have helped to seal the deal, he said.

In the market, CIMB said that Keppel is a laggard play in Singapore’s Capital Goods segment with an outperformance of 11% vs. 24% peer average.

Investors however are advised to stay invested as back-end loading of profits could spur margin expansion in FY13 as Keppel targets to deliver 19 jack-ups.

Read? Kep Corp: Margin squeeze in 2013? (2)

For delivery in 2013: $2.3B

19 Jackups/1 TLWP/1 Semi/2 Semi Upgrades/1 Drillship Upgrade/1 Accommodation Semi/2 FPSO Conversions/2 FPSO Upgrades/ 1 FSO Conversion/1 Diving Support Vessel/1 Floating Dock/ 1 AHT/1 Containership/3 Bulk Carriers/6 Tugs

Here's from CIMB:

Keppel is our preferred yard in Singapore on 1) its better strategy in this rig cycle, taking on calculated risks in bidding aggressively for the jack-up rigs in 2010-11 and hence dominating about 45% of the market share; 2) its scalable overseas yards, to benefit from any nationalist sentiment (local content) among oil companies; and 3) lower execution slippage risk for Brazilian orders thanks to its 12 years of operations in the country, building familiar product-semi-subs. We keep our order estimates for 2013 at S$5.5bn.

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