If Keppel is so profitable, then why does it need to restructure?

Its O&M operations are not as solid as it seems.

Keppel Corporation might be in worse shape than its recent earnings statement makes it seem. Analysts at Maybank Kim Eng noted that Keppel might be in need of cash after it was reported that Temasek is mulling fund-raising options for the company.

Although the market believes that Keppel’s low net gearing of 0.5x will allow it to weather the offshore and marine (O&M) downturn, Maybank Kim Eng said that part of its cash may not be readily available to suppor O&M operations in FY16.

“O&M used to be its cash cow with most of its earnings upstreamed to the group to fund dividends and other businesses. This explains its stagnant NAV since FY12. But its FY15 NAV shrank from SGD2.3b in FY14 to SGD1.4b, despite PATMI of SGD481m. This suggests considerable net cash outflows to the group,” said the report.

Maybank Kim Eng said that Keppel’s cash generation was also hampered by backend-loaded rig payments and delayed deliveries.

“ It is highly possible that O&M does not have much cash left to support its working capital in FY16, unless clients pay up,” Maybank said.