Keppel, SembMarine rebound sharply

Analysts say the rout of Keppel has "gone too far" as the market has "misinterpreted" the extent of provisions that the firm and SembMarine need to make if major client Sete Brasil files for bankruptcy.
Analysts say the rout of Keppel has "gone too far" as the market has "misinterpreted" the extent of provisions that the firm and SembMarine need to make if major client Sete Brasil files for bankruptcy.PHOTOS: REUTERS, BLOOMBERG
Analysts say the rout of Keppel has "gone too far" as the market has "misinterpreted" the extent of provisions that the firm and SembMarine need to make if major client Sete Brasil files for bankruptcy.
Analysts say the rout of Keppel has "gone too far" as the market has "misinterpreted" the extent of provisions that the firm and SembMarine need to make if major client Sete Brasil files for bankruptcy.PHOTOS: REUTERS, BLOOMBERG

Both get a respite from hammering, thanks to higher oil prices, favourable analyst briefings

Keppel Corp and Sembcorp Marine shares rebounded sharply yesterday after higher oil prices and favourable analyst briefings gave the firms a respite from the hammering they have endured in recent weeks.

The blue chips were among the market's top gainers after crude rallied to around US$30 a barrel.

Investors were also cheered by news that two brokerages maintained or upgraded their calls on the two firms ahead of a shareholder meeting today of Sete Brasil, their largest client for deepwater rigs.

Analysts said the rout of Keppel had "gone too far" as the market had "misinterpreted" the extent of provisions that the firm and SembMarine need to make if Sete Brasil files for bankruptcy after the meeting.

Keppel rose 6.8 per cent or 33 cents to $5.18, but the stock is still down 20.4 per cent for the year, making it the second-worst performer on Singapore's Straits Times Index (STI). Nomura Global Markets Research said Keppel's share price weakness could mean a short-term investment opportunity.


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SembMarine jumped 12.5 per cent to $1.48, but it is down 15.4 per cent for the year and is the STI's third-worst performer.

The two firms have been belted over concerns they could be forced to reverse billions of dollars in revenue and profits and make costly impairments if Sete Brasil goes under.

Sete Brasil ran into financial distress after it failed to secure long- term financing amid allegations of kickbacks involving state-run oil producer Petrobras.

But even if Sete Brazil files for bankruptcy, it does not imply that orders will be removed as the bankers could want to "ring-fence funding to save certain projects", Nomura said yesterday.

Keppel has orders for six semi- submersible rigs from Sete Brasil worth $6.2 billion, while SembMarine has seven drillships worth $7 billion in total on its order books. The orders were secured in 2011 and 2012, when the energy sector was booming.

Analysts estimate that each company has recognised $1.5 billion to $2.5 billion of revenue and the unrecognised portions make up about 40 per cent of their order books.

"We expect two or three projects each for Keppel and SembMarine to be at risk of cancellation if Sete Brasil defaults," said Nomura, which upgraded its call on Keppel to neutral from reduce.

Nomura maintained a buy call on SembMarine, saying the market has priced in potential provisions since its fourth-quarter profit warning last month. "More importantly, in the event of a default, we note that the two Singapore yards have not started work on the last three projects each from Sete Brasil, and hence the deposits collected will be confiscated with little cost incurred to date."

RHB Research, which maintained a buy call on Keppel, believes the market is treating the company like a pure oil and gas play and ignoring all its other divisions.

Moreover, no rig orders does not mean no work, RHB pointed out.

While it is unlikely there will be new rig orders for the next two years, this does not equate to not having work. There is still demand for liquefied natural gas vessels, fixed platforms, other specialised vessels and vessel repairs, RHB said.

A version of this article appeared in the print edition of The Straits Times on January 20, 2016, with the headline 'Keppel, SembMarine rebound sharply'. Print Edition | Subscribe