Singapore: Keppel Corporation Limited 3rd Quarter 2010 Results Beat Forecast


The Directors of Keppel Corporation Limited advise the following unaudited results of the Group for the third quarter and nine months ended 30 September 2010.

The 9M 2010 Report Card, the Address by Mr Choo Chiau Beng, Chief Executive Officer, and the Address by Mr Teo Soon Hoe, Senior Executive Director and Group Finance Director, are below.

9M 2010 Report Card

1. Net profit improved 10% to S$1,016 million compared to 9M 2009’s S$922 million.

2. Earnings per share of 63.5 cents, up 10% from 9M 2009’s 57.9 cents.

3. Annualised ROE remained above 20%.

4. Economic Value Added before exceptional items increased from S$715 million to S$747 million.

5. Cash outflow of S$987 million.

6. Net gearing of 0.06x.

Address by Mr Choo Chiau Beng, Chief Executive Officer:

Cautious Optimism

“Over the last quarter, we have seen continuing global recovery, although the pace varies across different regions and sectors. The US recovery is moderating in the face of debt, continued uncertainty and waning stimulus, while Europe continues to see an uneven recovery amidst complex policy challenges. In contrast, Asia is experiencing a vigorous and balanced recovery. China and India are both poised to register strong growth this year. Singapore’s economy for the third quarter grew by 10.3%, and is on track for full-year growth of a robust 13-15%, although the government has cautioned that this is not likely to be sustained. Financial conditions across the globe have started to normalise but institutions and markets remain fragile.

Oil prices are expected to remain around US$80 a barrel in the coming year.

Results Highlights

Against this backdrop, I am happy to report that for the first nine months of this year, Keppel Corporation has again turned in a better performance than the same period last year. Our net profit has increased 10% from the same period last year to above S$1 billion, while our annualised ROE continues to be above 20%. Economic Value-Added increased from S$715 million to S$747 million.

Offshore & Marine

The fundamentals of the offshore & marine industry remain sound. Projections indicate that energy demand from developing countries is set to grow by 65% from 2005 to 2030. With fossil fuels remaining the dominant energy source for the foreseeable future, the long term outlook for offshore drilling will stay positive. On exploration and production (E&P) spending, national oil companies are less sensitive to oil price movements. With oil prices stabilising at the current range, many offshore oil and gas projects are profitable, although financing for many of them is still an issue. Nevertheless, oil companies are expected to increase their E&P spending in the coming year.

There has been little change in the global rig fleet composition for several years. Following the Macondo incident, the industry is seeing a flight to quality, as owners and operators move towards high-grading of their rig fleets. Interest is also returning to shallow water rigs, reflected by the upward trend in dayrates for jackups. The dayrates of the new and better grade jackups that are equipped to do more, against those of standard jackups is also widening.

Keppel is well positioned to meet the needs of the industry. Two Ensco semisubmersibles built by Keppel have been permitted to return to drill in the Gulf of Mexico, while two of three vessels helping in the spill relief operations – Development Driller III and Q4000 – were built by Keppel. We have also taken on several uncompleted projects from other yards. This is a testament to both our ability to design and build high quality premium rigs as well as our reputation for delivery and execution excellence. I must add that we welcome the lifting of the ban on deepwater drilling in the Gulf of Mexico and the implementation of tighter regulations.

Orders for newbuild rigs are returning and the level of enquiries has also picked up. We have raised our stake in Subic Shipyard in the Philippines to better capture opportunities from the increase in general repair and upgrading work. We have bidded for the Petrobras rig tenders and are awaiting the results. In the interim, we continue to focus on honing our strengths in delivery and execution excellence – on 7 October, we achieved a significant milestone in Brazil by delivering the country’s largest converted FPSO P-57 to Petrobras early, safely and within budget.

We are also continually developing innovative product offerings to our customers in new growth areas. Our new compact and slim drillship designs, as well as our offshore wind turbine installation vessel, will meet the industry’s quest for effective yet environmentally-friendly solutions.

Infrastructure

The gathering global momentum towards sustainable development has provided good opportunities for our environmental engineering arm – Keppel Integrated Engineering or KIE – to continue growing its global track record. KIE has just announced a second major contract win of S$341 million in the UK, for the second phase of an Energy-from-Waste plant in the Greater Manchester area. To be integrated as part of an earlier project secured in April last year, this latest project will strengthen KIE’s working relationships with local partners and position us well to capture more opportunities in the UK and the rest of Europe. Leveraging its market leader position in China, KIE is also actively seeking opportunities in the waste-to-energy sector there.

Earlier this afternoon, KIE submitted a bid to design, build and operate Singapore’s largest desalination plant to be located in Tuas. If we are competitive, we look forward to more detailed discussions with the government in the coming months.

Meanwhile, in Qatar, we have encountered some cost overruns and delays in our projects, but we expect these issues to be ironed out in the coming year.

For Keppel Energy, we are proceeding with the 800MW expansion of our power plant on Jurong Island with a total investment of around S$900 million, and the entire expansion programme is expected to be completed by 2013. Keppel T&T is also expanding capacity in logistics here in Singapore and in China to meet greater demand.

Property

In property, our key markets have continued to see steady growth. Although private home prices in Singapore grew at a slower clip in the last quarter, the strong economic growth expected this year means that demand is likely to stay resilient. We are targeting to launch our homes in the Jurong Lakeside Drive site later in the year to meet this demand.

Keppel Land also announced last week a proposed asset swap with K-REIT Asia to divest its share in Phase One of the Marina Bay Financial Centre, and purchase Keppel Towers and GE Tower for redevelopment into prime homes. This move allows Keppel Land to unlock value from its one-third interest in the Marina Bay Financial Centre development, as well as to capitalise on the business district’s transformation into a live-work-play precinct and leverage the government’s future plans to redevelop the Tanjong Pagar area. The proposed swap will also significantly enhance K-REIT Asia’s portfolio. I would like to point out that this exercise will be good for unitholders of K-REIT Asia.

In China, the government has introduced further cooling measures to stabilise the country’s property sector. Nonetheless, with China’s rapid urbanisation and the leadership’s move towards sustainable development, we believe that the Chinese property market will see continued growth for many years to come. Indeed, we have just succeeded in the acquisition of two prime sites in Chengdu that would allow us to grow our presence in this important city and capture value from China’s Develop the West strategy. With more than 40,000 homes in the pipeline, China accounts for about half of Keppel Land’s total residential landbank. We have sharpened Keppel Land’s focus on this very important market, with the establishment of a wholly-owned subsidiary, Keppel Land China, which will own and manage all of Keppel Land’s projects in China. The China operations already contribute 28% of Keppel Land’s total earnings and with the formation of Keppel Land China, we expect this to grow in the coming years.

The Sino-Singapore Tianjin Eco-City has continued to show progress. This past quarter saw the launches of some of the residential developments in the Eco-City’s Start-Up Area. In recent months, our joint venture company has continued to attract international technology partners such as Hitachi and ST Engineering to contribute their ideas and expertise in this landmark project. The first phase of the Keppel eco-development in the Eco-City, Seasons Park, is on track for launch before the end of the year. It is heartening that more than 3,500 people have already registered their interest for the units to be launched.

On Track for Sustained Growth

The multi-pronged growth strategy which we have put in place is working out well for us. By adhering diligently to and sharpening our focus on our core competencies, we are able to weather the storms well and effectively ride on the uneven global recovery. The outlook for the Group as a whole in the near term is good, notwithstanding some immediate challenges which our industries are currently facing.”

Source:Kepcorp, October  21, 2010;

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