Keppel Corp profits up 15%

Offshore & marine margins bottomed.

KEP posted headline net profit of S$2.2bn (+15% y-o-y) for FY12 on topline of S$14.0bn (+39% y-o-y). Stripping out fair value and divestment gains, core net profit was S$1.9bn (+28% y-o-y) – in line.

O&M performed within expectations, with EBIT margins stabilising at 13.7% (-8.6ppts y-o-y).

DBS notes that while Infrastructure disappointed again on further provisions due to execution issues at KIE, this was offset by improved performance from Keppel Energy and strong Property performance, mainly from sale of units at Reflections and higher associate contributions.

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On top of a final cash DPS of 27.0 Scts declared, KEP is also rewarding shareholders with a proposed 27.4 Scts dividend-in-specie of Keppel REIT units, on the basis of one unit for every five KEP shares held. This will bring FY12 cash dividends to 45Scts (FY11: 43Scts), and total DPS to 72.4 Scts (an attractive yield of 6.4%), a record for the group.

O&M earnings back on growth path. O&M orderbook stood at S$12.8bn (Dec 12) with potential upside from the Naftogaz semisub orders worth US$1.2b. Backed by a record delivery of 22 newbuilds in 2013, there’s scope for productivity gains, signaling a bottoming of O&M margins.

Margins could revert to 15% by FY14, augmented by a pick- up in contributions from higher-margin offshore conversion projects. Group earnings decline of 16% in FY13F is due to the absence of exceptional earnings contribution from Property division.