SINGAPORE Company

SINGAPORE Company Update

Update Results
Results MITA
MITANo.
No.010/06/2009
010/06/2009

23 April 2010
Maintain
Keppel Corporation
BUY
Previous Rating: BUY Higher margins boost net profit
Current Price: S$9.97
Fair Value: S$11.22
Results largely within expectations. Keppel Corporation
(Keppel) reported a 16.9% YoY fall in revenue but saw a 12.9%
4000 14.0
rise in net profit to S$322m in 1Q10, largely within our
3500 STI 12.0 expectations but higher than the street's estimate of S$290m,
3000 10.0
2500 8.0
according to a Dow Jones poll. Group operating profit margins
Keppel
2000
Corp
6.0 reached a record high of 16.5% in the last quarter compared
1500 4.0
1000 2.0
to 13.6% in 4Q09 and 10.6% in 1Q09; the higher margins
were supported by the offshore marine and property divisions.
Apr-08

Apr-09

Apr-10
Jan-08

Jul-08

Oct-08

Jan-09

Jul-09

Oct-09

Jan-10

There were no exceptional gains in the offshore marine division

and the higher profitability was mainly due to productivity gains
and higher operational efficiency from repeat orders.

Offshore marine's margins. The offshore marine continued

Reuters Code KPLM.SI to shine with its high margins but in the long haul, this should
ISIN Code BN4 not be sustainable given the highly competitive nature of the
Bloomberg Code KEP SP business. Projects secured in 2007 and 2008 had "peak
margins" and going forward, Keppel's CEO envisions "a different
Issued Capital (m) 1,599
ball game". Projects that are currently being worked on today
Mkt Cap (S$m/US$m) 15,942 / 11,613
should have decent margins but these are likely to be lower
Major Shareholders
for new projects, especially newer ones in Brazil (if secured)
Temasek Holdings 21.7% as local content is higher and labour costs greater.
Free Float (%) 77%
Daily Vol 3-mth (‘000) 4,486 Good performance in other segments. The property division
52 Wk Range 5.590 - 10.040 saw its net profit double to S$152m due to improved contribution
from trading projects and from the development of Marina Bay
Suites in Singapore. Strong new homes sales were achieved
in Singapore and China in 1Q10 and phase 1 of the Marina
Bay Financial Centre is now effectively fully leased. The group
believes that the commercial segment in Singapore is showing
(S$ m) FY08 FY09 FY10F FY11F signs of bottoming out as the decline in office rental eased
Revenue 11,805.4 12,247.1 10,935.5 11,475.5
further. For the infrastructure segment, lower revenue from EPC
EBITDA 1,377.6 1,679.1 1,377.9 1,365.6
contracts in Qatar was partially offset by higher revenue from
P/NTA (x) 3.5 2.7 2.5 2.3
the Keppel Merlimau cogen plant, and the group has started
to plan the plant's expansion to meet the growing demand for
EPS (cts) 69.0 102.0 69.2 68.0
clean energy.
PER (x) 14.4 9.8 14.4 14.7

Maintain BUY. Our property analyst has increased Keppel

Land's fair value estimate to S$4.18 (prev. S$4.16) and we
have updated the market values of Keppel's listed entities.
We have also reduced our conglomerate discount to 5% (prev
Low Pei Han 10%) as synergies can be tapped amongst Keppel's
(65) 6531 9813
e-mail: LowPH@ocbc-research.com
businesses (e.g. marrying competencies in environmental
engineering and property to develop integrated townships). This
brings our fair value estimate to S$11.22 (prev. S$10.20). We
maintain our BUY rating on Keppel.

Please refer to the important disclosures at the back of this document.

Keppel Corporation

Exhibit 1: Operating profit margins of business segments over time

45.0%
Offshore Marine
40.0% Property
Infrastructure

35.0%

30.0%
Operating profit margin

25.0%

20.0%

15.0%

10.0%

5.0%

0.0%

-5.0%
4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10
Source: Company, OIR

Keppel Corp's Key Financial Data

Keppel Corp Results 1Q09 1Q10 % Chg 4Q09 % Chg
Year Ended 31 Dec (S$ m) (S$m) (S$m) (YoY) (S$m) (QoQ)

Revenue 2,978.0 2,473.3 -16.9% 3,029.2 -18.4%

EBITDA 355.9 451.4 26.9% 468.2 -3.6%
Depreciation & amortisation -40.6 -44.4 9.4% -55.2 -19.5%
Net interest expense 1.0 0.8 -24.7% 14.0 -94.5%
Associates 83.9 57.1 -31.9% 71.0 -19.6%
Others 0.1 0.2 107.4% -95.3 NM
Pre-tax profit 400.3 465.1 16.2% 502.2 -7.4%
Tax -73.9 -89.5 21.0% -72.8 22.8%
Minority interests -41.0 -53.6 30.5% -49.2 8.8%
Net profit 285.3 322.0 12.9% 342.4 -6.0%

Page 2 23 April 2010

Keppel Corporation

Keppel Corp's Key Financial Data

EARNINGS FORECAST BALANCE SHEET

Year Ended 31 Dec (S$m) FY08 FY09 FY10F FY11F As at 31 Dec (S$m) FY08 FY09 FY10F FY11F

Revenue 11,805.4 12,247.1 10,935.5 11,475.5 Cash and cash equivalents 2,244.9 2,935.8 3,069.6 3,204.0
Operating profit 1,238.5 1,504.8 1,177.1 1,117.3 Other current assets 5,845.6 5,649.7 5,050.0 5,368.3
EBITDA 1,377.6 1,679.1 1,377.9 1,365.6 Property, plant, and equipment 1,872.6 2,157.2 1,777.6 1,779.4
Finance costs & invt income 4.4 29.1 53.9 77.0 Total assets 16,746.4 17,306.9 16,901.7 17,705.7
Associates and JV 354.0 321.7 350.0 385.0 Debt 1,970.2 1,759.2 1,340.8 1,340.8
Exceptionals 12.6 322.1 0.0 0.0 Current liabilities excluding debt 7,646.5 6,423.4 5,774.4 5,922.6
Pre-tax profit (excl. EI) 1,596.8 1,855.6 1,580.9 1,579.4 Total liabilities 9,997.9 8,594.3 7,527.0 7,675.1
Profit before tax 1,609.4 2,177.7 1,580.9 1,579.4 Shareholders equity 4,596.2 5,985.3 6,482.0 6,961.0
Minority interests -223.4 -204.7 -165.4 -176.9 Total equity 6,748.5 8,712.6 9,374.7 10,030.6
Profit attributable to shareholders 1,098.0 1,625.1 1,107.2 1,086.6 Total equity and liabilities 16,746.4 17,306.9 16,901.7 17,705.7

CASH FLOW
Year Ended 31 Dec (S$m) FY08 FY09 FY10F FY11F KEY RATES & RATIOS FY08 FY09 FY10F FY11F

Op profit before working cap. changes 1,395.7 1,708.6 1,402.7 1,391.7 Core EPS (S cents) 69.0 79.3 69.2 68.0
Working cap, taxes and int 651.1 -1,038.4 -373.6 -400.1 EPS (S cents) 69.0 102.0 69.2 68.0
Net cash from operations 2,046.8 670.1 1,029.2 991.6 NTA per share (S$) 2.8 3.7 4.0 4.3
Purchase of PP&E -399.6 -475.8 -200.0 -200.0 Net profit margin (%) 9.3 13.3 10.1 9.5
Other investing flows 228.4 899.3 331.1 -49.5 PER (x) 14.4 9.8 14.4 14.7
Investing cash flow -171.2 423.5 131.1 -249.5 Price/NTA (x) 3.5 2.7 2.5 2.3
Financing cash flow -1,255.6 -376.7 -1,024.8 -607.6 EV/EBITDA (x) 11.3 8.8 10.3 10.3
Net cash flow 620.0 717.0 135.4 134.5 Dividend yield (%) 3.5 6.1 3.8 3.8
Cash at beginning of year 1,597.1 2,244.9 2,935.8 3,069.6 ROE (%) 23.9 27.2 17.1 15.6
Cash at end of year (incl ODs) 2,244.9 2,935.8 3,069.6 3,204.0 Net gearing (%) Net cash Net cash Net cash Net cash

Source: Company data, OIR estimates

Page 3 23 April 2010

Keppel Corporation

SHAREHOLDING DECLARATION:
The analyst’s immediate family owns shares in the above security.

RATINGS AND RECOMMENDATIONS:

OCBC Investment Research’s (OIR) technical comments and recommendations are short-term and trading
oriented.
- However, OIR’s fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-month
investment horizon. OIR’s Buy = More than 10% upside from the current price; Hold = Trade within +/-10%
from the current price; Sell = More than 10% downside from the current price.
- For companies with less than S$150m market capitalization, OIR’s Buy = More than 30% upside from the
current price; Hold = Trade within +/- 30% from the current price; Sell = More than 30% downside from the
current price.
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Page 4 23 April 2010