H109 net profit of S$603m excl EI was 54% of UBS 2009E estimates Net profit was slightly ahead of our forecast, which is ~11% ahead of consensus ests. (Excluding SPC gains). Offshore operating margins improved more than 100bps QOQ on efficiency gains; property also benefited from an improvement in sentiment. Gains from the SPC sale was S$615m, offset by an unexpected S$114m impairment charge on infrastructure assets; which seemed more opportunistic than necessary in our view. DPS of S$0.15, special dividend potential at year end.

Order book prospects brighter, Keppel strategically positioned Keppel’s strong comment that it does not expect further cancellations on its S$7.7bn (US$5.3bn) order book reinforces our view that capital markets and customers’ liquidity positions have improved. Furthermore, we are bullish on Keppel’s chances on upcoming Petrobras awards, which could amount to US$800m-1bn/contract, given its ability to fulfil the Brazilian’s local content desires and its track record: Keppel has operated in Brazil since 2000.

Property: Tianjin Eco-City moving ahead, P&L impact from 2010/2011 The Keppel group development of a 37ha land parcel in Tianjin Eco-City (TEC) is interesting as it puts a firmer timeline on profit contribution. On simple assumptions, we estimate the residential portion of the 37ha site could yield a total of S$128m net profit. We think the market still misunderstands the potential of the 30sqkm TEC, which we believe justifiably contributes to S$0.76/KEP share value.

Valuation: S$9.60 price target based on sum of parts We value offshore on DCF and impute listed entities at market price.