<News Analysis> More twists and turns of SPH deal
- Keppel commences arbitration proceedings against SPH on purported termination of proposed acquisition agreement; do not expect material impact to financials and share price
- Separately, Keppel O&M has secured S$250m worth of new contracts, a good start to the year
- Keppel has also bought back 5.1m shares or c.0.3% stake since share buyback announcement on 27-Jan
- Reiterate BUY and TP S$6.90
Arbitration proceedings against SPH. Keppel has received a written notice from SPH on 24-Jan, expressing its intention to consult the Securities Industry Council (“SIC”) on termination of proposed acquisition agreement entered into with Keppel in Aug-2021. Keppel disagrees with the termination and has filed a notice of arbitration with the Singapore International Arbitration Centre (“SIAC”) to commence arbitration proceedings against SPH in respect of the dispute on 9-Feb. Based on terms in the agreement, SPH is obliged to pay a break fee of S$34m and other remedies in the event of failing to perform its agreed obligations. As market has yet to factor in SPH contributions to earnings and valuation, we do not expect termination of SPH deal to have material impact on Keppel’s financials and share prices.
Contract wins totaled S$250m. Keppel has secured S$250m worth of new contracts from repeat customers, comprising: 1) Conversion of a LNG carrier into an FSRU. This is the formalisation of order received earlier in Nov-2021 from GasLog Carriers upon receipt of the Final Notice to Proceed; 2) Installation and Integration of topside modules for Bacalhau FPSO from MODEC; and 3) repair and jumboisation of two dredgers for Royal Boskalis Westminster. While Keppel clinched S$3.3bn new orders last year, tripled from ~S$1bn a year ago, it was attributable largely to a huge turnkey EPC contract for FPSO P-78 worth S$3.08bn. Excluding this, order wins were relatively low at ~S$260m for FPSO and windfarm substation works. Hence, YTD wins of S$250m is rather commendable as we are just slightly over a month into 2022. We expect enquiries and order momentum to continue trending up this year, on the back of high oil prices and post COVID recovery. There could be upside risks to our S$2bn new order assumption.
Share buyback mandate activated. Keppel started buying back shares the next day after its release of S$500m share buyback plan on 27 Jan. As of 8-Feb, the group has bought back ~5.1m shares, representing ~0.3% of total issued share cap. The treasury shares will be utilised for its employees share scheme, as well as future M&A opportunities. The corporate action not only signals management’s confidence on Keppel’s operational performance but shall also lend support to share prices.
Reiterate BUY and TP at S$6.90. Keppel’s valuations remain undemanding at <1x PB. It also offers decent dividend yield of 4%.