Why Keppel's offshore segment could be worse than expected

Gains from the segment may fall to as low as $3b.

Keppel's offshore and marine segment (O&M) was a big miss in the past quarter after reporting a mere profit of $95,000.

According to DBS Vickers Securities, this is due to the low activity level in the segment. Its earnings before interest and tax (EBIT) margins plunged to as low as 0.8%, compared to a margin of 18.8% a quarter ago.

"We forecast revenues from Keppel O&M falling to the around $3-4b levels in each of FY17 and FY18, from $7-8b p.a. during FY12-14. The continued depletion of its orderbook, and deferments/cancellations could pose downside risks to our forecast" the brokerage firm noted.

Here's more from DBS Vickers Securities:

In 4Q16, Keppel provided S$313m impairment for fixed assets, stocks & WIP and investments which largely arose from the O&M segment, partially offset by fair value gain on investment property. Stripping this out, PATMI would have been better than expected at c.S$300m (vs reported S$143m).

O&M segment reported a loss of S$138m due to provisions of S$270m in the quarter. Otherwise, it would have registered a stellar EBIT margin of 18.8% and PATMI of S$130m, aided by write-back, repair jobs and cost savings.

Order wins in 2016 was rather low at S$500m. We expect Keppel to secure S$1.5bn worth of new orders this year. Orderbook (excluding S$4b Sete rigs) has dwindled to S$3.7b, from S$5.1b as at end-2015 and S$4.1b a quarter ago.

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