Keppel Corp will be releasing its FY08 results on 22nd Jan 2009. While we expect FY08 EPS of 66 cts per share versus consensus of 67cts, Keppel’s numbers could be severely eroded by a shortfall from SPC, as well as a significant amount of provisions or write-downs from order cancellations, inventory adjustments etc. We are unable to fully quantify the extent of write-downs, but the market looks to have already braced itself for this. Qualitatively, the outlook for the Group remains weak too.

Associate Singapore Petroleum Company (SPC) is releasing its FY08 numbers on 20th January, but had already warned of weak earnings on 12th December. SPC cited a sharp slowdown in product demand and a decline in refining margins. In 3Q09, earnings had already collapsed to practically nothing, for year-to-date earnings amounting to S$279m, down 28%. We expect full year earnings to fall short by between $50-100m.

Besides the recently announced order cancellations from Scorpion Offshore and Lewek, Petrobras recently cancelled the tender processes for its P-61 tension leg platform and P-63 FPSO projects because the bids were deemed too high amid current market conditions. This clearly indicates that customers are no longer willing to pay through the nose, unsurprising in the current oil price environment. The implication is that the offshore space is getting more competitive, impacting margins.

We expect Keppel Land, which reports on 21st January, to post a 24% fall in core earnings. However, we do not expect any write-downs to its landbank at this time due to its low historical cost, nor do we expect any similar write-downs for Reflections. However, the outlook for the mid-to-high end segment in Singapore remains weak.

Given the lacklustre outlook across Keppel’s businesses, our Hold recommendation is maintained, as is our target price of $4.50, based on a 20% discount to its sum-of-the-parts. While we expect Keppel to maintain a high dividend payout in order to optimise its capital structure, our current estimate of 44 cts per share may be at risk due to potential write-downs and provisions.