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Wednesday October 05, 2011
Keppel: 'Rock-solid' infrastructure play
by Yiannis Mostrous, editor Global Investment Strategist Long-Term Portfolio holding Keppel Corp. (KPELY) remains one of our top plays on the global energy and infrastructure boom underway across the globe. The main contributor to earnings growth was the O&M division, which delivered the second-highest quarterly profit margin in Keppel’s history. Keppel has booked USD7.3 billion worth of new orders, and the firm could secure an additional USD2 billion worth of new orders should ongoing contract negotiations play out. Keppel’s balance sheet is strong with USD2.6 billion in cash and low net gearing, which will allow for smooth operations amid a tightening global credit environment. As 60 to 70 percent of the company’s net income is derived from its O&M division, Keppel’s stock price is correlated to the price of oil, which also affects its valuation. Keppel is a growth stock. But the company’s strong financial position enables it to weather any financial crisis. Companies such as Keppel will be the first to emerge from a downturn and will do so stronger than ever. We’ve long advocated that investors accumulate stocks of rock-solid companies during times of uncertainty –a strategy that will allow investors to make gains when the markets turn around. Keppel’s stock trades at about two times book value, with a return on equity of about 22 percent. These may not be trough valuations, but Keppel’s shares still trade at a discount to the stock’s long-term average of 2.4 times book value–a good entry point for long-term investors. Keppel’s stock trades at an undemanding 13 times projected earnings and the company’s share price should climb as the market recognizes the company’s rock-solid fundamentals. Keppel Corp remains a buy up to USD20. Learn more about this financial newsletter at Yiannis Mostrous' Global Investment Strategist. 
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