LIFETIME MEMBERSHIP Three cheers for Keppel share price! On 24 June, Keppel announced the signing of non-binding MOU with Sembcorp Marine with a view of combining Keppel Offshore & Marine (KOM) and Sembcorp Marine. Rumours of a merger between the two top dogs in the oil and gas sector had been swirling for years. Many investors had expected the deal to be the perfect catalyst for Keppel share price because of the economy of scale and operating synergies.
Indeed, market reactions had been positive for Keppel initially. Keppel share price surged from $5.10 on 24 June to a high of $5.60 on 28 June. Within a span of just four days, Keppel share price increased by 10%. In my previous article, I wrote that my target Keppel share price in 2021 was $5.50. Now that the counter has crossed this level, I do think that $7 could be the next attainable milestone for Keppel share price in 2021.
The $5.50 share price price level was previously based on the assumption that Keppel could make net profit $500 million for the full-year in 2021. Incidentally, the 24 June announcement revealed that Keppel will receive shares in the new listed company and a cash consideration of up to $500 million. Given that the Group is also selling its legacy rigs to a separate “Asset Co”, the slew of divestments may propel Keppel share price to $7 by the end of the year.
Investors will also recall the partial offer of Keppel shares at $7.35 made by Temasek Holdings back in 2019. Although Temasek Holdings had withdrawn the partial offer in last year, it is clear that the fair value of Keppel share price should be around $7 or thereabout.
In my previous article “Keppel share price to soar with potential demergers?”, I have also shared that my vision is that Temasek Holdings could be planning a “Big Bang” restructuring of Keppel Corp in 2021 which could see the industrial conglomerate demerging its KOM, Keppel Land and Keppel Infrastructure into listed companies. The end result could see Keppel Corp remaining as a listed investment holding company, with Keppel Capital and other business residing in Keppel Corp.
In my opinion, it will make sense for Keppel to demerge its profitable business units from the ailing KOM and then list them in SGX mainboard. In doing so, the management could unlock value for shareholders while preserving the equity value of Keppel Corp. With these in mind, is it the right time to buy into Keppel share price now? In this article, I will discuss the outlook of Keppel share price in 2021.
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. I am not vested in Sembcorp Marine at the moment. Whether Sembcorp Marine 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 in exciting time
The latest move is not surprising as the management is known for making bold decisive moves. Prior to becoming the world’s largest oil rig builder, Keppel was actually a financial powerhouse. Back in the 2001, through Keppel Tat Lee Bank, the financial and banking arm of the Group contributed more than 50% of net profit. In the aftermath of the Asian Financial Crisis, the series of banking consolidations led to Keppel Tat Lee Bank being sold to OCBC Bank in 2001. With the cash proceeds, Keppel embarked on an intriguing adventure in the oil and gas sector. That remarkable journey saw Keppel share price reaching a high of $14 per share in 2007.
However, all good things must come to an end. Due to a series of unfortunate events, Keppel share price is a shadow of its former self. Though the oil-rig building business contributed significant revenue and profit to the Group, this segment is tremendously capital intensive and prone to external factors like crude oil price movements, economic conditions and geo-political tensions. In fact, the past decade saw plenty of volatility in Keppel share price.
The unveiling of Vision 2030 in last year will see Keppel embarking on yet another new growth chapter, one that is sustainable and asset-lite. In January 2021, the Group announced its decision to exit oil-rig building business. But make no mistake. Keppel is exiting oil-rig building business, not oil-rig business. Based on my understanding, it means that Keppel [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.]LIFETIME MEMBERSHIP
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