Friday, March 23, 2012

Journey To Retirement Part 7 -- KepCorp

The seventh part of my investment portfolio in which objective is to create wealth to retire.

Stock : Keppel Corporation
Keppel Corporation, KepCorp, listed in 1980 in SGX, is a conglomerate which having business in Offshore/Marine, Property, Infrastructure and Investments sector.  In its Offshore/Marine unit, it is a global leader in rig design, construction and repair, ship repair and conversion, and specialized shipbuilding.  Under its Infrastructure arm, it has business in power & gas, environmental engineering ( K-Green ) and logistics and data centres ( Keppel T&T ).  Kepland and K-Reit are its Property division that involve in residential and commercial development.  Under its Investment arm, it has strategic investments in K1 Ventures and M1 so as to growing value for shareholders.  Was first invested in KepCorp in 2010 at a price of $8.14 and since then apart from collecting dividend, was rewarded with bonus share as well as share in K-Green when K-Green was listed in June 2010.  KepCorp is being classified under "growth-cum-income stock" in my portfolio despite its traditionally rewarding shareholders with good dividend.  Reason being its Offshore/Marine and Property arms are those cyclical business that could spur surprises in their growth. Am also waiting for opportunity especially recession scenario to add more of KepCorp share.    

Potential Upside :
From its latest FY earning dated January 2012, its Offshore/Marine arm has order books of almost $10 billion which deliveries extending till 2015.  Meanwhile its other division like Property, Infrastructure and Investments were also consistently performing.  The potential upside for KepCorp should be from its Offshore/Marine and Property division.  As crude oil price is on a high side averaging US$100/barrel, demand for oil rig building should be increasing.  Furthermore, all eyes are on those orders from Petrobras in which KepCorp is one the favourite to win quite a substantial amount of orders from it.  Its Property arm has slowly divested overseas for expansion.  Given that Singapore has land limitation, the decision to venture overseas without any doubt is a good decision by the management.  Currently, it has business in Vietnam, China, Indonesia and India.  With recent news of Myanmar's decision to open up to foreign investment, this could a good opportunity for Kepland to venture into it given that it has the experience ( in Vietnam ) and financial muscle to do it.  While China currently, is suffering from falling in property prices due to the Government property curbing measures, this could turn into opportunity for Kepland ( which currently involves in the development of Tianjin Eco city ) to acquire land on the cheap for development and waiting for China property sector to rebound.  Offshore/Marine and Property sectors are cyclical and if the cycle is correct, the two will produce the unexpected upside for KepCorp.

Potential Downside :
While KepCorp's Offshore/Marine and Property divisions are the one who could provide the potential upside to the company, they are also the potential one who could drag the company performance to the downside.  As cyclical business, should global economy situation turns bad and resulting in recession scenario, the revenue from Offshore/Marine ( lack of orders, drop in oil prices or even possible cancellation of existing orders by customers due to credit issue and rising competition from competitors from Korea and China ) and Property ( fall in property prices, property bubble bursts or more property curb measures to fight inflation from Government ) will no doubt take a hit and thereby affecting the company overall earning.

Personal Expectation :
The minimum expectation for KepCorp is its ability to maintain the traditionally good dividend rewards to shareholders and that could be achieved from its "recession proof" business in its Infrastructure division.  The next expectation is its ability to maintain its global leader role in Offshore/Marine and that is the "growth" component of the "growth-cum-income stock" classification.

Keppel Corporation

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