KEPPEL CORP: News ahead is likely to be negative

KepCorp: Now that the counter has visited the low end of my expected range of $6.50 to $6.30 and rebounded to the $7 level, what comes next?

The biggest customer for offshore rigs of recent times, Brazil, continues to head into deeper troubled waters as its China dependent economy suffers from the dragon's bout of flu. Rounds & rounds of prescription have not been able to bring relief & the dragon seems incapable of being its fiery self for a while yet.

Petrobras had already twice delayed deliveries of its order for several units of rigs, pushing some to as far as 2019. As of the last update, it had not been making new payments for the work progressed and KepCorp was about to exhaust the earlier payments that it had received, meaning KepCorp itself will have to fund further work with no indication of payment.

Or it can choose to suspend further work.

Together with the practically non-existent prospect for any new order for rigs, KepCorp may be driven to explore other work so as to help relief its high fixed cost burden. A company I previously worked for in the fabrication & installation of offshore structures, facing such a slump, resorted to take on non-traditional work - fabricating the roof for the largest column-free aircraft hangar in the world at our Changi Airport. Ended up a very unhappy experience, financially.

So, like SembMarine, KepCorp may be forced to undertake conversions and low-margin work.

But until then, it faces the daunting prospect of having to impair its huge investments in its facilities for rig building and in its work-in-progress or billings for work progressed.

Just today I read about Dukang Distillers recognising impairment loss of over S$100m to its manufacturing facilities, etc because of poor business in its baijiu industry.

I believe the news ahead for KepCorp is likely to be negative.

Eugene Lim is a qualified accountant with over 30 years experience in financial control and planning, and business management. Spent most of his career in multi-national companies in the oil, gas, energy and power generation businesses and also in public accounting, manufacturing and retail and trading businesses.

Counter Name	Last	Change
AEM Holdings	2.290	-0.070
Best World	2.460	0.020
Boustead Singapore	0.945	-0.015
Broadway Ind	0.125	-0.003
China Aviation Oil (S)	0.905	-0.005
China Sunsine	0.400	-0.010
ComfortDelGro	1.450	-0.010
Delfi Limited	0.895	-0.005
Food Empire	1.280	-0.040
Fortress Minerals	0.305	-0.015
Geo Energy Res	0.300	-0.005
Hong Leong Finance	2.480	-0.010
Hongkong Land (USD)	2.830	-0.020
InnoTek	0.520	-0.015
ISDN Holdings	0.300	0.005
ISOTeam	0.042	-0.001
IX Biopharma	0.040	-0.005
KSH Holdings	0.255	0.005
Leader Env	0.050	-
Ley Choon	0.044	0.001
Marco Polo Marine	0.067	-0.002
Mermaid Maritime	0.136	-0.003
Nordic Group	0.310	-0.005
Oxley Holdings	0.089	-
REX International	0.138	0.003
Riverstone	0.790	-0.005
Southern Alliance Mining	0.445	-
Straco Corp.	0.495	0.010
Sunpower Group	0.205	-0.005
The Trendlines	0.069	-
Totm Technologies	0.022	-
Uni-Asia Group	0.825	-
Wilmar Intl	3.400	0.020
Yangzijiang Shipbldg	1.740	-0.030

Counter Name

Last

Change

AEM Holdings

2.290

-0.070

Best World

2.460

0.020

Boustead Singapore

0.945

-0.015