Recently, I bought into Keppel Corp after their announcement of their full acquisition of Keppel Land. The reason for this is because I believe the amount that they paid is fair and also due to the recent oil crash, the valuation of the company seems to be more and more attractive. I intend to hold this stock for the long term(the dividend payout is good too) and decided that if it were to drop further, I will buy more of it.
However, after 2 weeks, i sold off the shares. This is because of an email that was sent by my dealer. It reads:
According to a 6 Feb 2015 article by Upstream, Brazil’s national development bank BNDES has postponed a US$3.2b credit lifeline for several Brazilian shipyards; this comes after news reports in mid Jan that BNDES would disburse loans to Sete Brasil for rig payments. This is negative news for Keppel Corp (KEP) as it affects the ability of Sete Brasil to make payments to its yards. KEP could see a delay in receiving payments, or worse still, there could be order cancellations. We estimate that Sete Brasil and Petrobras account for 40-50% of KEP’s order book. With the recent appreciation of KEP’s share price, there is now only a ~10% upside to our original fair value estimate of S$9.14. As the Brazilian situation is still fluid, we advise caution at this stage, and lower our P/E for the O&M segment from 13x to 12x due to increasing downside risks.
Now with the crash in oil prices, oil companies will reduce their capital expenditure on oil rigs, which might impact on Keppel Corp future order book. However, Keppel Corp current order book is quite healthy, stretching into 2019. However, if the above statements materialise, this will means that Keppel oder book will be greatly impacted and risk of default by its customer will be high. I couldn't accept this risk and thus sold off all my shares. Not too bad though, I made a profit of 4.5% for a holding of 2 weeks.
Only when there is a much clearer picture of the above situation will I decide to invest in Keppel again.
Cheers~
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