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Another windfarm substation contracts in the bag

  • Secure contracts to build two offshore windfarm substations worth S$110m, lifting YTD wins to S$3.21bn
  • A testament to KOM’s execution and capability in offshore windfarm solutions
  • KOM to benefit from anticipated O&G capex increase
  • Reiterate BUY; TP S$6.20
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Secure S$110m new contracts. Keppel O&M (KOM) has secured a contract from a renewable energy company to build two offshore windfarm substations (OSS) worth around S$110m. Scheduled to be delivered in 2024,KOM’s work scope comprises the EPCC for the topside modules of two OSS, .excluding the OSS foundations, as well as certain electrical components to be furnished by the client. 
The new orders lift KOM’s YTD wins to S$3.21bn. We estimate net orderbook stands at c.S$5bn. A testament to KOM’s execution and capability in offshore windfarm solutions, the contract also reflects KOM’s continuing pivot towards renewables and cleaner energy solutions. 

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O&G capex set to trend up, potentially higher enquiries and order flows for shipyards. After years of underinvestment on O&G assets especially upstream exploration, risks of supply shortage are becoming more apparent. One key watching point in upcoming strategy previews and 2021 results announcement in early 2022 would be oil majors’ capex stance, especially the supermajors. On the back of high oil prices, drilling activities are already creeping up. Rig utilisation has improved to the north of 80% and market is looking to reactivate cold-stacked rigs as well as completed / half-built rigs. Shipyards like KOM and Sembcorp Marine (SMM) are benefiting from this trend. Keppel’s stranded rigs and floating accommodation platforms should see higher utlisation ahead. Enquiries for production platforms should also pick up, translating into stronger order flow next year. This is particularly critical for SMM, which orderbook has dwindled to S$1.2bn, way below annual revenue run rate of >S$2bn to breakeven. Keppel is in a better position with S$5bn orderbook and S$3.2bn order wins YTD, compared to peer SMM’s mere S$600m new wins. 

Maintain BUY and TP of S$6.20 on Keppel Corporation.