Tuesday, June 23, 2015

Seeking Alpha: Keppel Hoping A Different Structure Can Produce Better Results

These are challenging times for Keppel Corp (OTCPK:KPELY). As one of the largest builders of offshore drilling rigs, Keppel is looking at an increasingly tough operating environment as low oil prices have pushed down rig utilization and dayrates, stressing already highly leveraged drillers and leading to delivery delays and cancellations. With that, the company's ADRs have fallen by more than a quarter since my last update.

Keppel is looking at a pretty solid order book that will keep its yards busy for the next two years, but there are serious questions about what happens after that. Unless oil prices turns up sharply this year (and look likely to stay there), it's hard to see where the replacement orders are going to come from. That makes management's decision to acquire all of Keppel Land even more significant to the long-term story, as property development may be the company's only viable option for growth after the offshore order book dries up. While Keppel does still pay a solid dividend and appears to be undervalued by a double-digit percentage, the significant operating uncertainties make it difficult to argue for buying these shares.

Read more here:
Keppel Hoping A Different Structure Can Produce Better Results

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