How KepCorp outbid Chinese, Korean rivals in its recent contract win

Order book now stood at $15.8b.

According to CIMB, Transocean has ordered five units of Keppel’s proprietary Super B-class jack-up rigs worth US$1.1bn. It expects a 15% EBIT margin at least. Order book is now a record S$15.8bn with 2013 wins at about
S$6.4bn, above our S$6bn target.

CIMB noted Keppel has outbid the Chinese and the Koreans in this deal as speedy delivery (27 months) is a key criterion.

Here's more:

Keppel’s YTD new orders are predominantly for its proprietary jack-up rigs (18 units of B class and Super B class).

We expect EBIT margins of at least 15% for its latest contract with the potential for upside from efficiency gains (through repeat execution). Keppel’s EBIT margin was 16.5% in 3Q13, with the help of the delivery of five jack-up rigs of proprietary design (Figure 1) on top of high-margin repair jobs.

While the Koreans would rather focus on more sizeable contracts of above US$500m (drillships, semi-subs and harsh-environment jack-up rigs), the Chinese still have a lot to catch up in terms of timely delivery.

We believe Keppel’s track record is its key competitive advantage over the attractive payment terms and low pricing of its competitors.

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