OCBC raises Keppel's new order win forecast by an additional S$1bn

Driven by stellar O&M sector prospects.

With Keppel Corporation (KEP) announcing that it has secured new orders worth about S$4.9b YTD and the company basking in good order momentum that is supported by prospects in the O&M sector, OCBC said "we increase our new order win forecast to S$6b for this year, while keeping our S$6.75b target for FY14F
unchanged for now."

OCBC expectes more orders from Mexico as PEMEX tries to engage more foreign industry players like Keppel Corporation to help develop the country's resources. 

"We also look to other growth areas such as West Africa, the Caspian Sea and the Gulf of Mexico," said OCBC. 

Here's the complete company analysis from OCBC:

Good order win momentum; raising forecast. Keppel Corporation (KEP) has secured new orders worth about S$4.9b YTD, close to our original forecast of S$5b. With good order momentum that is supported by prospects in the O&M sector, we increase our new order win forecast to S$6b for this year, while keeping our S$6.75b target for FY14F unchanged for now.

New developments support positive view. KEP also recently announced that it will jointly develop, own and operate a yard facility in Mexico, in line with its “Near Market, Near Customer” strategy that we have always believed will put it in good stead to win new orders, especially with increasing focus on local content requirements. The first phase of this yard, costing US$150m, is to support the construction of six KFELS B Class jackup rigs for PEMEX, Mexico’s national oil company. Total yard development cost is about US$400m.

Signs have been pointing to Mexico. After a long period of oil production decline due to under-investment, Mexico finally opened its doors to foreign investors when its President proposed allowing PEMEX to enter into JVs, and for private oil companies to enter into profit-sharing agreements with the government. As mentioned in our earlier reports, the realization that PEMEX cannot develop the country’s resources meaningfully alone will lead to more opportunities for foreign industry players, including KEP. Earlier this year, PEMEX unveiled investment plans of US$25.3b for 2013, of which US$20b is targeted at upstream activities. 

Raising FV to S$12.87. Besides more orders expected from Mexico, we also look to other growth areas such as West Africa, the Caspian Sea and the Gulf of Mexico. With the better-than-expected order flow YTD and good prospects in the O&M sector, we increase our new order estimate for this year from S$5b to S$6b, resulting in an increase in our SOTP-based fair value estimate from S$12.53 to S$12.87. Maintain BUY.