Keppel set for strong Q2

Singapore conglomerate Keppel Corporation Ltd., the world’s top builder of offshore oil rigs, is set for a 28% quarterly profit rise on Thursday as rig orders boom and oil refining returns improve.

More than half of the rigs now under construction around the world are in Keppel yards, feeding an energy industry that is racing to profit from record crude prices. Strong demand for fuel has also lifted margins in Keppel’s refining business. Together, its rig-building and refining operations should account for 80% of full-year 2005 profits, which analysts see up around 20%.

According to a Reuter?s poll of four analysts, Keppel will deliver net profit of about $83 million in the second quarter to June 30, up from $65 million a year ago. The figure will be down slightly from the $86 million earned in an exceptionally strong first quarter, partly as a result of uneven contract completion payments in the rig division, lower earnings in its telecoms infrastructure business, and a possible loss at the utilities arm.

Daiwa analyst Ang Soo Kee expects the rig effect to even out over the year, and analysts say that with $4.2 billion worth of rig-building orders already set to keep Keppel yards busy until 2009, demand for new rigs is set to rise even further.

Some analysts warn that Keppel Corp.’s share price reflects unrealistic optimism over the potential demand for rigs and may come under pressure if oil prices start to retreat. “The drilling rig business would need to deliver the equivalent of 20 jack-up rigs each and every year, forever, to justify Keppel’s share price,” said CSFB analyst Bradley Burch who has an “under perform” rating on Keppel Corp’s shares.