Keppel O&M on the cusp of recovery with $1.9b contract win YTD

It surpassed the $1.7b new orders secured during the whole of 2018.

As contract wins have already hit $1.9b as of end-June 2019, Keppel Corporation’s offshore & marine (O&M) division is said to be on the cusp of recovery with an expected order win totalling $2.5b in FY 2019, a report by DBS Equity Research revealed.

The O&M division reported net profit of $10m for H1 2019, compared to a net loss of $40m in 2018, due mainly to higher investment income, lower net interest expense and a higher share of associated companies’ profits.

The division had previously clinched $1.7b new orders in FY 2018, from $1.2b in FY 2017 and $500m in FY 2016. As at end-June 2019, the O&M Division won quality contracts worth about $1.9b, higher than the total value of new orders secured in the whole of 2018.

“These include offshore wind projects worth about $720m from established renewable energy customers, namely Tennet Offshore and Ørsted. As at end June 2019, the division’s net orderbook stood at $5.5b, the highest level since 2016, excluding projects for Sete Brasil,” the firm explained in its H1 financial statement.

Keppel O&M’s second floating liquefied natural gas (FLNG) conversion project, Golar Gimi, also struck steel in Q2 2019, which is expected to further drive its revenue growth 15% in FY 2019/2020.

Also read: Keppel Corporation profits dropped 39.3% to $356.28m in H1

“We believe the pick-up in demand for oil and gas (O&G) production-related facilities and FLNG vessels in the next two to three years would eventually drive contract wins closer to the norm of $4-5b per annum,” DBS analyst Pei Hwa Ho said, adding that Keppel O&M’s orderbook has been trending up the past two quarters to $5.5b, excluding $4b of Sete orders, as of end June-2019.

“An oil price rebound would also improve rig utilisation, spurring capex spend and order wins. In terms of growth potential, Keppel’s first-mover advantage in the FLNG conversion market could provide earnings upside - customer Golar has already awarded Keppel a third FLNG project,” Ho added.

Meanwhile, Ho noted that Keppel O&M is looking to add workforce in preparation for the workload upturn. “The increase in staff strength is the first since undertaking its rightsizing exercise in 2014. The group added 1100 staff in Q2 2019 and expects another 700 in H2 2019,” he said.

A separate report by OCBC Investment Research (OIR) noted that Keppel O&M’s headcount has grown from 10,843 in Q1 2019 to 11,582 as at end June.