Keppel Corp pops the champagne on $16.1b order book

After sealing US$265m deal with Ensco.

According to a report by CIMB, another jack-up rig is in the bag for Keppel, bringing its YTD new orders to S$6.8bn, a reminder of the good old times in 2005-07 when its annual orders averaged S$7bn. Order book is now at a record S$16.1bn. 

Here's more:

The contract comes with an option (expiring in three months) for a similar unit. Keppel is our top pick among the O&M big caps. It is trading at 1.8x FY14 P/BV or -1 s.d. below its 5-year mean. We see stronger orders and margins as key catalysts and maintain our Outperform rating and RNAV-based target price.

What Happened

US-based Ensco has ordered its fourth KFELS Super A Class ultra-premium harsh-environment jack-up rig worth US$265m from KepCorp, with an option for another unit. The rig will be delivered in 2Q16. Payment terms are 20:80. The rigs are meant for operating in 400ft waters with drilling depths of 40,000ft.

What We Think

In 2011, Ensco had ordered three KFELS Super A Class rigs for delivery in 2013-14, with the last one priced at US$245m. The 8% increase in unit price since takes into account higher equipment and labour costs. The latest unit’s specifications also meet revised regulations for operations in the UK/Danish sector of the North Sea.

The first three units have been chartered at attractive day rates of US$230,000/day, which could be the reason for the repeat order from Ensco. We expect the accompanying option (fixed price) to be converted very soon.

We keep our 2013-14 order targets at S$7bn and S$6bn respectively. Some 45% of our 2014 order forecast is already in the bag, assuming that Ensco exercises this option in early 2014, on top of the exercise of two out of Transocean’s five options (S$600m) and Pemex’s option for five B-class jack-ups (S$1.8bn).