KepCorp

DMG & PARTNERS SECURITIES on  Dec 28

SEMISUB order from Sete Brasil: Confirming our confidence that Petrobras awards could materialise by Q1 FY12 (latest), Keppel said it has secured a US$809 million ($1.05 billion) order for a semisub drilling rig from Sete Brazil. The rig is based on Keppel's DSSTM 38E design and is scheduled to be delivered in Q4 FY15. We noted that: 1) the price of the semisub rig was 8 per cent higher than its semisub bid to Petrobras in Dec 2010 at US$749 million. 2) The contract period of more than four years (award to delivery) is longer than the period required for semisubs built in Singapore at around 40 months. This helps to alleviate some delay risks as the yard in Brazil is less efficient. 3) The order also marks the first full design and build semisub contract for Keppel since August 2008. We maintain our FY11-12F EPS estimates and raise FY13F EPS by +2 per cent, assuming the semisub achieve initial recognition in 2013 and 8 per cent operating margin.
We maintain our 'buy' rating on Keppel with an unchanged TP of $11.40.
Backlog order book climbed to $10.7 billion: This semisub is part of the proposal submitted by Keppel O&M to Sete Brasil in July 2011. This contract lifted its YTD 2011 order win to $9.8 billion (2010: $4.6 billion) and backlog order book to $10.7 billion, a level not seen since 2006.
We understand that this DSSTM 38E design semisub will be part of the 21 deepwater rigs offered by Sete Brasil to Petrobras. Queiroz Galvao (QGOG), one of Keppel's partners in the Petrobras bid, has previously taken delivery of two DSSTM 38 design semisubs from Keppel and could be the operator of this unit. Management has not guided on the potential margins for this project, and in our earnings model, we have assumed 8 per cent operating margin on this semisub. Bulk of the revenue for this semisub will be recognised in FY14-15 and hence, the impact on our FY13F EPS estimates is marginal (2 per cent). We believe there could be more deepwater rigs in the pipeline as Petrobras concludes its rig building programme with Sete Brasil and Ocean Rig. Keppel has submitted bids for six semisub units and more contracts could be on the way.
BUY