Here's how back-to-back project deferrals will impact Keppel

Both Golar and Transocean deferred their orders.

Keppel’s offshore and marine arm recently suffered project deferrals from two key clients. Golar, a global liquefied natural gas (LNG) shipping group, revealed that it has deferred notice to proceed for its two FLNG projects when it released its Q4 results. Meanwhile, Transocean has deferred delivery of its five jack-up rigs to 2020, from its original delivery date of 2016.

According to UOB Kay Hian, the Golar deferral will have a larger impact on Keppel’s earnings. The extended deferment of the two Golar projects have a combined estimated impact of $87 million, while the extension of Transocean’s deferral lowers the overall project’s earnings contribution from $42m to $31m.

On the flipside, Keppel has minimal working capital locked up from deferral. Construction progress at Transocean’s rigs are estimated to be between 5-45%. Meanwhile, construction of the Golar vessels are yet to begin, so expenditure on inventories should have been minimal.

“Keppel’s two FLNG projects from Golar have had their Notice to Proceed timelines deferred to end-16. Given the sizeable combined contract size of US$1.4b, we are removing it from our earnings estimate till the projects have formally started, and hence our 2016-18 earnings forecasts are reduced by 2-4%. We also factor in Transocean’s deferral earnings impact, which is minimal at about 1%. Current valuation implies a 25% discount for the O&M unit,” UOB Kay Hian noted.