WITH KEPPEL CORP due to release earnings today, the market should be on the look-out for possible warning signals.


NicholasTeo3.15"Keppel's share price may prove less sensitive to earnings as to the 'bookings' of new orders in their rig business. 
In this regard, book-to-bill ratios have fallen below the 'crucial' level of 1X since last year."  
-- Nicholas Teo (above)  

With numbers not expected to fall far from estimates, the street will be interested in any updates, especially on their engagements with rig owners for possible new bookings for 2015.

With the operating environment expected to remain challenging - largely as a result of depressed crude prices - the outlook is far from positive.

Keppel's share price may prove less sensitive to earnings as to the 'bookings' of new orders in their rig business.

In this regard, book-to-bill ratios have fallen below the 'crucial' level of 1X since last year.

What this means is that they are unable to match the pace of securing fresh contracts compared to the rate that they are completing their orders on hand.

Further 'depletion' of their order books without a reasonable degree of replacement could then mean uncertainty for their business, with low earnings visibility in the years ahead. 

With the price of crude settling at roughly half of where it was trading a year ago, if not less, Singapore rig builders have not managed to announce any new contracts of significance so far in 2015.

Further risks may reveal themselves in the form of contracts being pushed-out or delayed, as rig owners contemplate a later delivery for the rigs they have ordered. This could be because they are having difficulty in securing rentals for the rigs ordered. So far this year we have seen several delays (for later delivery) being announced, with anecdotal evidence suggesting more delays yet to come.

Overall, Keppel Corp shares have rebounded nicely from a low of around S$8 a share in January to a close at S$9.45 yesterday. This rebound has largely been on the back of a slightly firmer crude price.

From the charts, it looks like Keppel is testing the upper range of its ascending channel this year. The announcements and guidance by management during their earnings briefing today could set the tone for the stock over the days ahead.

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