Outlier 1Q09. Keppel Corporation's (KepCorp) topline grew 34.7% YoY to S$2.98b while PATMI rose 9% YoY to S$285m. The results exceeded our expectations in view of a strong show from the Offshore and Marine business. The other divisions performed largely in line with our expectations. A key highlight for KepCorp was an improvement in margins in all the divisions. These came in higher than our estimates.

Property, still a concern. Revenue declined to S$222m (-26% YoY) largely due to the completion of trading projects in FY08. Although the 33% YoY decline in bottom-line was faster than its revenue, it would have been worse if it was not mitigated by the increase in contributions from Marina Bay Residences and Reflections at Keppel Bay in 1Q09. Our property analyst has lowered our FY09 revenue and shareholders' profit forecasts to S$720.3m and S$222.7m respectively. Keppel Land has also declared a rights issue where KepCorp is committed to putting in up to S$678m.

Infrastructure: provides some silver lining. This division delivered a strong quarter as it recognised lump sum revenue from its Doha North project and its Keppel Merlimau Cogen plant obtained better market share in Singapore. On an annual basis, we think that the Doha project's lumpy contribution will be smoothened out. We are factoring its Cogen plant to sustain its market share.

Unfounded enthusiasm. We remain cautious on the enthusiastic 50% share price run since its recent low on 4 Mar 09 as fundamental positive changes in the industry have yet to be seen. Oil price continues to hover at sub-50s range while the group has seen a dearth of rig orders despite repeated assurances that the Oil Majors' and National Oil companies' E&P spending "will continue despite the slowdown in the world economy". We also caution investors on expecting similar quantums of dividend payouts as the group hunkers down to conserve cash and remain in a well capitalised position for acquisition opportunities. Our interim dividend is forecasted at 11 S cents, significantly below consensus of 17 S cents. We have shaved our revenue due to weaker property performance but PATMI improves due to upward revision of margins.

Downgrade to SELL. Our SOTP valuation has been bumped up to S$4.90 (prev. S$4.40) due to the run up market value of its associates plus an improvement in margins leading to better earnings. The 19% downside to our fair value is underpinned by weak industry fundamentals.