KEPPEL CORPORATION | HOLD
TARGET PRICE: $7.24
MARCH 21 CLOSE: $6.83
CIMB Research, March 21
Keppel is novating five Super B jack-up rigs from Transocean to Borr Drilling at US$216 million (S$301m) per rig, almost at a zero discount to its original price of US$219 million per rig.
Three of the rigs will be delivered in 2017 and the remaining two in 2020.
A new deposit of US$275 million will be paid, bringing total deposits to 45 per cent.
The good terms secured are commendable, especially in the current oversupply situation in the rig market.
Upgrade to "hold" with a higher target price of $7.24, comprising 0.8 times price-to-book for property, 1.5 times O&M price-to-book and 18 times Keppel Capital.
Upside risk could come from stronger-than-expected orders and unlocking of non-core assets at attractive valuations. Downside risk is provisions for impairment.
TAT HONG HOLDINGS | HOLD
TARGET PRICE: $0.40
MARCH 21 CLOSE: $0.375
OCBC INVESTMENT RESEARCH, MARCH 21
Tat Hong Holdings has acquired 23,000 shares in China Nuclear Huaxing Tat Hong Machinery Construction Co from a minority shareholder, hence increasing the company's effective interest slightly to 84.61 per cent.
It is a profitable company and prospects for the tower crane rental business in China remain healthy.
The company has also utilised $16.4 million, or about 40 per cent of the net proceeds from the rights issue, for debt repayment.
This is in line with prior stated intentions, proceeds are to be used for both debt repayment and working capital purposes.
JEFFERIES SINGAPORE, MARCH 20
Investors currently perceive that the credit cycle has peaked and asset quality issues are unlikely to be a share price driver unless new names come up in O&G.
While Ezra's bankruptcy filing should not be a complete surprise, such events, coupled with recent decline in oil prices, do raise the probability of more (and possibly prolonged) non-performing loan issues related to the industry.
In addition, the uncertainty surrounding collateral valuation will also linger.
Late last week, auditors of Nam Cheong included an emphasis of matter with respect to the material uncertainty related to going concern in their report on Nam Cheong's FY2016 financial statement.
The outlook for Singapore banks for growth and margin reflation is still murky, so paying 8-12 per cent premium to trailing book is quite generous.
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