Keppel's offshore business sinks into doldrums

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The last quarter of 2017 was disappointing for Singapore conglomerate Keppel Corp after its net profit crashed by a whopping 72 percent to S$217 million, no thanks to its offshore and marine (O&M) business.

Keppel has nothing to blame but the series of unfortunate events its O&M recorded for the quarter. According to UOB KayHian analysts Foo Zhi Wei and Andrew Chow, the segment saw a further provision of S$81 million for Sete Brasil and impairments of S$54 million on top of a core operating loss of roughly S$80 million.

"No impairments were taken for the stranded rig assets. The core operating loss was attributed to lower work volume and low margin orders, a reflection of the orders taken during the downturn," the analysts said.

However, Foo and Chow noted that the losses for the O&M division should have been expected, given that contract wins in any year lags earnings by one year.

"With two consecutive years of likely low margin orders, and future contract wins to be at low margins for a while, it may be difficult to see a tangible pick-up in earnings in the near- to mid-term," they explained.

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Additionally, the provision for Sete Brasil seems to indicate that impairment risks still remain.

However, Keppel could depend on its infrastructure and investments businesses for growth as these two key divisions are expected to generate earnings in the coming quarters.

For instance, initiatives such as Keppel Urban Solutions and Alpha DC Fund could result in Keppel Capital expanding by its expected S$5 billion per annum in assets under management.

More so, Keppel's Integrated Waste Management Facility (IWMF) project in Hong Kong and Keppel Telecommunications and Transportation's data center initiatives will also be able to contribute more meaningfully in the coming years.

Keppel's infrastructure segment managed to report a net profit of S18.7 million in 4Q17 while its investment business recorded net earnings of S$19.8 million.

This article was first published on January 31, 2018