Equally beaten down. Both Keppel Corp and SembCorp Industries have beenbeaten down by about 60%, underperforming the market by 15-25% YTD. This waslargely due to market jittery and a reduced appetite for offshore & marine stocksfrom credit volatility, order deceleration and falling oil prices.

Which is more resilient? We believe that both SCI and KepCorp are on a levelplaying field in the offshore & marine sector. Execution of significant order backlogsshould continue to underpin their earnings growth in FY09. Similarly, both face thethreat of order deceleration from a tight credit environment. In this report, we lookfor values in their remaining entities other than offshore & marine, focusing onproperty, SPC and utilities as these segments are key non-offshore & marineearnings contributors.

Keppel Corp: triple whammy. Apart from negative sentiment on offshore &marine, Keppel is crippled by a sluggish outlook for Keppel Land and SPC. Webelieve that more de-rating of KepLand is possible on the back of impendingpressure on the Singapore office market, uncertainties in the residential property aswell as substantial capex commitments for MBFC. SPC’s outlook remainschallenging as there could be further inventory write-downs depending on oil prices.Refining margins could be squeezed by demand destruction due to the economicslowdown and supply of new refineries globally.

SCI’s Utilities business more shielded from negative sentiment. We expectearnings from Utilities to remain stable with a slight dip of 1% in FY09, incorporatingzero growth for Singapore and a weaker UK as it takes the full impact of the expiryof favourable supply contracts (in 1Q08) and lower translated earnings from adepreciating sterling. However, from FY10 onwards, we expect growth to resumeon the back of: 1) ramped-up contributions in Singapore as Exxon and Shell’sexpansion plans are due for completion which could translate into additionaldemand for utilities on Jurong Island; and 2) more normalised earnings from the UK.

Maintain Neutral on Keppel Corp and target price of S$5.40, based on sum-of-the-parts valuation. We believe Keppel will be more susceptible to a slowdown ofeconomies, affecting its offshore & marine, property and refining businesses.

SCI our preferred conglomerate; maintain Outperform, but lowered targetprice to S$3.23 from S$3.31. Based on current implied valuations (ex-SMM), SCI’sUtilities business is worth S$1.2bn or 6x CY09 P/E, which is below the level of itsinternational peers (9x). We prefer SCI to Keppel as we believe the utilities businessis still under-appreciated for its defensiveness and resilience in an economic turmoil