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Keppel Corporation Limited’s Latest Earnings: Long Winter Ahead?

Keppel Corporation Limited (SGX: BN4) reported its fiscal third-quarter earnings yesterday evening. The reporting period was for 1 July 2015 to 30 September 2015.

The business of Keppel Corp can be organised into four different units, namely, Offshore and Marine, Infrastructure, Property, and Investments.

You can learn more about Keppel Corp in here and here or catch up with the last earnings report here.

Financial highlights

The following’s a quick summary of Keppel Corp’s latest financial figures:

  1. Overall revenue for Keppel Corp sank by 23.4% to $2.4 billion compared to the same quarter a year ago.
  2. Profit attributable to shareholders fell by 12.4% year-on-year to $363 million.
  3. Earnings per share (EPS) followed suit with a 12.7% haircut from 22.9 cents in the third-quarter of 2014 to 20 cents in the reporting quarter.
  4. Cash flow from operations came in at a negative $467 million for the third-quarter of 2015. With capital expenditure of $117 million, Keppel Corp thus clocked a negative free cash flow of around $584 million. This is a significant decline from the –S$71.8 million in  free cash flow that was seen a year ago.
  5. As of 30 September 2015, Keppel Corp had $1.7 billion in cash and equivalents and borrowings of $7.8 billion. This is a step back from where Keppel Corp’s balance sheet was in the prior quarter when there was $2.3 billion in cash and equivalents and borrowings of $7.4 billion.

In all, Keppel Corp had seen larger falls in its revenue and profit when compared to the prior quarter. The conglomerate also failed to generate positive operating cash flow and took on more debt.

Operational highlights

Keppel Corp’s top-line fell on the back of lower revenue from the Offshore and Marine and Infrastructure segments. All eyes, though, were again on the Offshore and Marine segment. Loh Chin Hua, the chief executive of Keppel Corp, had given his take on the oil and gas industry in the earnings release:

“While E&P [exploration and production] investments have declined, they will have to increase eventually to keep up with global oil demand, which is set to rise by 1.4 million barrels per day in 2016. With rebalancing forces intensifying on both oil demand and supply sides, we believe oil prices will eventually recover and stabilise at a new equilibrium.

To be prepared for a possibly longer winter, we are also hunkering down in our O&M [offshore & marine] business, rightsizing our operations and resources.

We have considerable flexibility in our workforce deployment with our contract workers as well as overseas production yards. Our yards are still busy these next two years, but we are already trimming our overheads and making ourselves more efficient. We will continue to invest prudently in training, R&D and productivity improvements through the down cycle and get ourselves ready to seize opportunities when the upturn comes.”

For the quarter, the Offshore and Marine segment saw its revenue and net profit get sliced by 36% and 34% year-on-year respectively. Its net orderbook stood at $10 billion year-to-date, a decline from the $12.5 billion recorded at end-2014. On a brighter note, the Offshore and Marine segment has still managed to secure $1.7 billion of new contracts thus far in 2015.

The Property segment for Keppel Corp did better. Revenue soared 122% year-on-year to $487 million while net profit was up 57%. The Infrastructure segment also saw its revenue drop hard by 30% with its profit retreating.

Keppel Corp also shared that 26% of the group’s total net profit for the first nine months of 2015 came from recurring income. This is an increase from the 22% figure recorded in the prior quarter.

Foolish summary

As of its closing price yesterday of $7.29, Keppel Corp traded at a trailing price-to-earnings ratio of 7.2, and has a dividend yield of around 6.6%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chin Hui Leong doesn't own shares in any company mentioned.