Analysts positive on Keppel's exit from rig-building business

But move to shift focus to growth areas like renewable energy may cost jobs, firm admits

Analysts have backed Keppel Corp's decision to exit the rig-building business and shift focus to growth areas like renewable energy, but the firm acknowledges that the move may cost jobs.

The company said yesterday that retrenchments are possible as it transitions to being an "asset-light and people-light" developer and integrator of offshore energy and infrastructure assets.

Its Keppel O&M (offshore and marine) division employs about 10,500 people.

A Keppel O&M spokesman told The Straits Times: "It is premature to provide a specific number at this point, as we will still need to complete our order book, as well as the uncompleted rigs.

"We will right-size our network of yards and global headcount, but this will not take place overnight.

"It will include natural attrition, end of contracts and possibly some retrenchment."

But the spokesman added: "We will also invest in capability development. As we move up the value chain, we will also create new and higher value-adding jobs."

The company said on Thursday that its O&M business will look for opportunities in floating infrastructure and infrastructure-like projects that can deliver predictable streams of cash flow.

These include projects such as offshore wind farms and solar farms, gas solutions, production assets, and new energy solutions involving hydrogen and tidal energy, for example.

Yard operations will be streamlined, including repurposing or divesting part of the company's global network of yards.

Experts at UOB Kay Hian, CGS-CIMB and Citi Research kept their calls to add or buy the stock.

UOB Kay Hian analyst Adrian Loh said: "In our view, exiting the rig-building business is positive, given our bearish sector view for the next 12 to 18 months at the very least. Rig day rates and utilisation rates for all asset classes declined throughout 2020 despite starting the year with already poor numbers."

Keppel also remains the preferred pick of Citi Research analysts Kwok Wei Chang and Patrick Yau.

"Keppel should see a recovery across its key business pillars in this financial year as economic activity picks up. More pertinently, the gears are in motion for Keppel to position itself in benefiting from the accelerating renewables agenda (and resumption of the production cycle)," they said.

But other analysts were less optimistic and downgraded the stock to "hold". DBS Group Research analyst Ho Pei Hwa said Keppel's loss of $506 million in the last financial year was higher than expected, and added that investors should wait for more clarity on the restructuring.

Keppel Corp shares closed down 8.24 per cent at $5.01 yesterday.

A version of this article appeared in the print edition of The Straits Times on January 30, 2021, with the headline 'Analysts positive on Keppel's exit from rig-building business'. Subscribe