Keppel Corp could bag 10 high-spec jackups from Transocean

But China rivals still in contention.

According to Barclays, Keppel Corp stands a chance to win Transocean’s potential order for up to 10 high-specification jackups.

But Mainland rivals still have a chance to snag the lucrative bulk order away, depending on how willing established drillers are right now to Chinese yards to build new programs.

Here's the full analysis from Barclays:

We see Transocean’s potential order for up to 10 high-specification jackups (Upstreamonline) as a key catalyst for Keppel, either to the positive or to the negative With the growing acceptance and willingness of the established drillers to consider Chinese yards for their new build programs (click here for our recent report), the decision could be a significant indicator of how far Chinese yards have come. With our initiation of Keppel Land (UW), we update our price target for Keppel Corp to S$13.10.

Singapore vs. China: The potential Transocean order is shaping up to become a straight fight between Singapore and Chinese yards. Based on the Upstreamonline report (“Transocean ready for rigs splash”, 20 September 2013), Transocean is considering designs such as Friede & Goldman’s JU2000E (delivered/being constructed at a Dalian yard, CIMC Raffles, Sembcorp Marine), KFELS B Class (proprietary to Keppel), Le Tourneau C240 (COSCO) and PPL Pacific Class (Sembcorp Marine design).

Focus is on delivery and execution: According to the Upstreamonline report, one of the key deciding factors is likely to be the lead time required by Transocean to receive delivery of the rigs, which Transocean reportedly wants to occur in less than 27 months. Both Singapore yards have experience delivering rigs within 24 months. However, with National Oilwell Varco (NOV) highlighting the strong backlog of orders for their drilling packages and other rig equipment, we believe this could present a bottle-neck for the yards in achieving the required delivery schedule.

Lowering our 12-month price target to S$13.10: We lower our PT for Keppel Corp given our initiation on Keppel Land. Our Singapore property analyst, Tricia Song, rates Keppel Land’s stock as Underweight given that the company has one of the largest (and still growing) exposures (c49%) among the Singapore property companies to the China residential sector, which she believes is facing headwinds. (Click here for Tricia’s report).

Lowering earnings estimates: We incorporate Tricia’s estimates for Keppel Land into our Keppel Corp forecasts and lower our order win assumptions for Keppel’s Offshore & Marine segment. Thus, we lower our EPS by 1% for 2013, 6% for 2014 and 6% for 2015. Key risks: 1) The increasingly competitive landscape from the rising competition from Chinese yards may limit contract pricing upside or contract orders. And, 2) the quality of the current order backlog may be impacted by margins from Brazil contracts.