In perhaps one of the biggest corporate shake ups in recent decades, Keppel shocked investors by dropping the bombshell that it will exit the oil rig building business. On this note, it seems that Keppel share price is heading toward unchartered waters. In December 2020, I wrote that Keppel share price could remain volatile against the backdrop of the new normal for global crude oil prices. Indeed, Keppel share price collapsed by 8% on 29 January 2021 after the announcement of a set of dismal FY2020 results.
Full-year losses amounted to a staggering $508 million. The losses were largely attributed to the $952 million of impairments, mainly from the Offshore & Marine business. Arising from this, investors wasted no time punishing this counter as Keppel share price spiralled out of control, falling from $5.40 to $5.00 on 29 January 2021.
In view of the challenging operating environment for Keppel, a long-time SG Wealth Builder Lifetime member quickly wrote in to request for my insights on Keppel share price. This member has been a loyal supporter of my blog, so I feel obliged to do an objective research on the outlook of Keppel share price.
Although it is widely expected that Keppel share price will plummet following the announcement of the full-year losses, what is truly shocking for most investors should be Keppel’s decision to exit the oil rig business. We are talking about the world number 1 oil rig builder exiting its core business. This is akin to Singtel exiting its telecommunication business. To be honest, the latest move also caught me by surprise because I was expecting Keppel to demerge its Offshore & Marine. What I didn’t expect is Keppel exiting the oil rig building business altogether.
In my opinion, the drastic move to axe the oil rig building business is a step in the right direction by Keppel. The oil rig building business requires large outlay of capital and is extremely labour intensive. With US shale oil competing for a piece of the market share, the demand for oil rigs will continue to be hazy in the years to come. Due to this, Keppel share price will likely to remain depressed if the Group continues its foray in the oil rig building business.
Nonetheless, in the short term, it remains to be seen if this bold move will pay off and revive the ailing Keppel share price. One positive outcome that could emerge out of this strategic move may be the decoupling of Keppel share price with crude oil prices. A stable Keppel share price will allow the management to focus its energy in rebuilding the businesses.
Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. Furthermore, I am not vested and have never invested in Keppel Corp before. Whether Keppel share price will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.
Keppel share price yet to bottom?
With Net Asset Value (NAV) of $5.90, Keppel share price is trading at levels below its book value. While the current price levels may offer good opportunities for accumulation, investors must have the patience to witness a return of the form of Keppel share price.
Obviously, it will be unreasonable for investors to expect Keppel share price to recover to the $10 price levels in 2021. This is because it takes time for a company to restructure and grow. Thus, it could be years before we start to see positive results in Keppel Corp. A more realistic target for Keppel share price in 2021 should be [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]
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