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	2.390	0.050
Best World	2.460	-
Boustead Singapore	0.955	-0.005
Broadway Ind	0.133	-
China Aviation Oil (S)	0.920	-0.005
China Sunsine	0.415	-
ComfortDelGro	1.480	-
Delfi Limited	0.895	-
Food Empire	1.260	-
Fortress Minerals	0.300	-0.005
Geo Energy Res	0.305	-0.005
Hong Leong Finance	2.500	-
Hongkong Land (USD)	3.130	0.010
InnoTek	0.550	0.030
ISDN Holdings	0.310	-
ISOTeam	0.044	0.001
IX Biopharma	0.042	0.001
KSH Holdings	0.250	-
Leader Env	0.051	-
Ley Choon	0.045	-
Marco Polo Marine	0.067	-
Mermaid Maritime	0.140	-
Nordic Group	0.305	-0.005
Oxley Holdings	0.088	-0.001
REX International	0.134	-0.002
Riverstone	0.800	-0.015
Southern Alliance Mining	0.430	-
Straco Corp.	0.475	-0.035
Sunpower Group	0.215	0.010
The Trendlines	0.067	-
Totm Technologies	0.022	-
Uni-Asia Group	0.825	-
Wilmar Intl	3.470	-0.030
Yangzijiang Shipbldg	1.740	-0.010

Counter Name

Last

Change

AEM Holdings

2.390

0.050

Best World

2.460

Boustead Singapore

0.955

-0.005

Broadway Ind