• BUY STOP Entry – 5.20 Target –6.34 Stop Loss – 4.85
  • Keppel Corp announced yesterday that it has signed a non-binding Memorandum of Understanding (MOU) with Sembcorp Marine (SMM SP) to combine Keppel Offshore & Marine (Keppel O&M) and SMM into a Combined Entity. 
  • In the same announcement, Keppel Corp signed a non-binding MOU with Kyanite Investment Holdings Pte Ltd (Kyanite), a wholly owned subsidiary of Temasek, with a view to sell Keppel O&M’s legacy completed and uncompleted rigs and associated receivables to a separate company, which would be majority owned by external investors.
  • If the proposed transaction is successfully completed, the Combined Entity will be a listed entity and Keppel Corp will receive shares in the Combined Entity and a cash consideration of up to S$500mn. Keppel Corp intends to distribute all the Combined Entity shares that it receives to shareholders. 
  • Meanwhile, Keppel Corp will still retain ownership of Floatel International Ltd and SGX-listed Dyna-Mac holdings Ltd. 
  • Our view. It’s overall positive for Keppel Corp, and should provide a much needed re-rating catalyst to its share price. It’s a good deal as Keppel Corp will still receive S$500mn in cash, which will help strengthen its balance sheet. 
  • Not so good for SMM, at least in the short-term. On the other hand, we think the development will be short-term negative for SMM’s share price as SMM will need to recapitalise through another massive rights issuance of S$1.5bn. 
  • Outperform, TP S$6.34. We currently have an outperform recommendation and a TP of S$6.34. Consensus estimates has 10 BUYS / 2 HOLDS / 2 SELLS and a 12-month TP of S$6.26 (+23% potential upside).