Keppel Corp could be poised to establish a business trust based on FLNG assets, Singapore analysts have suggested.
The possible new strategy for the Singapore-based offshore shipyard group follows in the wake of the chistening of the Hilli Episeyo – the world’s first LNG carrier-to-floating LNG (FLNG) conversion - at Keppel.
“Keppel’s underlying gas strategy entails more than just being a preferred vendor for LNG solutions; it hints towards building up a base of FLNG assets that generate recurring income,” says UOB Kay Hian analysts Foo Zhi Wei and Andrew Chow.
“This could be achieved by selectively taking stakes in the FLNG orders it undertakes. Given the rising role of gas, this strategy provides Keppel with a highly scalable model to reap the benefits of higher FLNG vessel demand in the future.
“The compelling economics of FLNG units support this, with equity IRR as high as ~40%. Keppel could create a FLNG trust, in the footsteps of Golar LNG Partners.”
Foo and Chew say the high yield and short payback period makes FLNGs highly suitable for packaging into a yield instrument.
“Given the scalability of the business model, this strategy provides Keppel with two engines of value growth: firstly via construction earnings under the offshore and marine business; and it creates recurrent income stream via its stake in the completed vessels,” they say.
However, the two analysts caution investors that this is a long-term strategy not expected to bear fruit in the near term.
“ We caution that this is a long-term strategy that will take several years to pan out. The strategy is also contingent on Keppel being able to invest in the projects they want.”
