Citigroup Raises Keppel Target Price on Brazilian Rig Business

Keppel Corp. and Sembcorp Marine Ltd. may gain from demand for deepwater drilling rigs from Brazil, contrary to investor expectations, Citigroup Inc. said. The U.S. bank raised Keppel’s target price by 20 percent to S$9.15 from S$7.60 after increasing the earnings per share of the world’s biggest rig builder by 9 to 34 percent, analysts Horng Han Low and Rigan Wong said in the report dated Aug. 24.
Keppel and SembCorp Marine shares fell in Singapore last week after Credit Suisse AG downgraded the offshore and marine engineering sector to “underweight” in a note on Aug. 17, saying earnings estimates “appear unrealistic.” Demand for rigs may decline by between 30 percent and 50 percent this year from 2008 levels, the Swiss bank said.
“Keppel is the best positioned within the sector,” according to the Citigroup report. “Singapore yard involvement in the Brazilian shipbuilding industry since 2000 is a distinct advantage versus foreign yards.” The bank kept its estimate on Sembcorp Marine unchanged at S$3.85.
SembCorp Marine, the world’s second-largest oil-rig maker, rose as much as 1.27 percent to S$3.20 today in Singapore. Keppel gained as much as 0.38 percent to S$7.95.
Petroleo Brasileiro SA will take bids for 28 oil-drilling rigs between May and December, according to an April 9 report by JPMorgan Chase & Co.. Petrobras may order 16 deepwater rigs and eight floating production platforms, which may translate into revenue of about $14 billion to $15 billion for yards.