While the earnings attributable to shareholders has slid by 19% for 2015 and 44% for the final quarter of 2015 (yoy), the earnings are still pretty good with 83.5 cents of diluted earnings per share. Considering that the year has been plagued by the drop in oil prices, the earnings are not that bad, though they may continue to decrease further, but the share price seems to have taken that into account with the low P/E ratio of 6.
The drop in oil prices has definitely taken its toll on the company with the offshore & marine division earnings dropping by more than half (partially due to provisions for losses on Sete Brasil rig building contracts). The property and infrastructure divisions have recorded decrease in profits while the investments has recorded an increase in profits. Keppel has diversified sources of income that stretch further out from its offshore & marine division, which the company is more well-known for and hence it is more likely to deliver decent results despite the decline in oil prices.
The company's balance sheet doesn't look too bad with the net gearing ratio of the company at 0.53, even with the acquisition of Keppel Land. The company has sufficient cash to repay its short-term debts, but there's a risk that the company may not be able to sell its stocks and works-in-progress with the decline in oil prices and their clients are unable to pay for the contracts, which has started with Sete Brasil, which may require more provisions for losses and write-offs.
As for the cash flow statement, the company has a negative operating cash flow, largely due to an increase in accounts receivable and stocks and work-in-progress as well as a decrease in accounts payable, which is a very bad position for the company to be in as they have more in inventory, have to repay their suppliers earlier and collect money from their clients later. Due to the acquisition of additional interest in subsidiaries (likely Keppel Land), Keppel has also seen a large drop in its cash and cash equivalents.
The prospects of the company seems ok, not particularly bad nor good. The offshore & marine is still in a challenging operating environment, but the company mentioned during the webcast on its results for the fourth quarter and full year that despite reports of slowing growth in China, the company has had a positive experience in China with home sales increasing in several cities. This is quite good news considering that most of the home sales by the company is in China. But then again, the company has quite a lot of investment properties that may be spread out, among other place, Singapore, where out rentals are dropping, which may eat into profits as well. I'm not too sure on their infrastructure division and the only thing that I know about the investment division is that they have a sizable stake in M1, so I'm not going to comment on those.
Overall, I think that Keppel is a nice blue-chip. While the growth prospects don't seem as strong, especially with the challenging operating environment in the offshore & marine, the low P/E ratio makes up for it, along with the high dividend yield currently, though this may experience dips in the future. But for the long-term investor, the current downturn in the oil and gas industry may be a good opportunity to get this blue chip at a steep discount.
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