Saturday, August 1, 2020

Random thoughts: Keppel - Don't be surprised to see price increase come Monday

Keppel has not met the pre-conditions for Temasek offer. 

Temasek can now walk away from the offer and offer a lower bid, or forget the whole exercise as a waste of time and wait for Keppel price to tumble even more, before making another offer. 

Yet, I believe Market might just do the reverse, and the reasons for this are as follow:

1) Keppel underlying profits are surprising resilent excluding the one-off impairments

2) The worst in terms of supply side shock is over. Remember, come 7 August, it is believed that workers can start returning to the yards, and Keppel has enough orders to keep the yards busy. Keppel has 24K workers, and currently only 5 K is working

3) While I believe Covid 19 is going to get worse, I believed there will not be a second lock-down. There will be some tightening of safe-distancing measures or crowd control measures, but unlikely we will see a schronised lockdown again.


If you have been looking at the charts for various countries since the begining of Covid, it is as predictable as ABC. When infections rate is making new high daily, the spike will come sooner or later, this is the case for Spain, USA and Russia etc. Globally, the figures are showing the same trend

Then why no more lock downs? First of all, the damage to economy is hugh. Countries tried lockdowns to get a hold of the virus, hoping to contain it. While it did slow it down, second or third resurgence is seen in many countries, if lock-down just buy you a bit of time, without solving any problem, and  you already have a hugh problem economically, I do not see why anyone would consider a second lockdown. 

Also, I have a conspiracy theory about lock-down. When the lock downs happen, one of the reasons is the world is in dire lack of masks, PPE etc, the lockdowns send almost everyone home as the governments firm up stratgies and address the supply shocks. Now that the world has already went through that phase, I doubt they will go into total lockdowns unless it becomes a last resort. 

4) Demand side shocks should get better. Why do I say this? Everyone is talking about the challenge of a vaccine, and how to get it to the rest of the world, and many were talking about having it this year or perhaps having it next year. All these talk IMHO is management of electoral expectations. Does it really matters to the economy whether you get a vaccine in December or 6-12 months later? There is no agrument about a vaccine anymore, but how quickly and effective it can be circulated among people. 

5) Temasek might not walk away. While Temasek is a commercially run company, I do think there will be plenty of repercussions if they walk away from the deal and return like a vulture for a even cheaper deal, for a local company that employs plenty of locals. If they walk away, they are unlikely to come back. 

Why 51%, with 51% Temasek call the shots, and can restructure the company to unlock values so that the offer price makes sense for them. I am not sure if the restructuring exercise is NTA sensitive, it is more likely future earning accretive or like the Sembcorp Demerger, allow SCM to survive longer in the future. 


6) At $5.4, Keppel is at a price where Temasek first made the offer, when COVID trashed the price to $4.8, and rumors about the deal being off, Temasek stated the offer still stands. I do not think Temasek wants to get a better deal, but rather wants the deal to be done well. Also, Keppel is not in dire state to need Temasek's injection of funds. Temasek would go for the subscription of rights route if that was the case, it is a coporate action to let Temasek restructured the companies for better days.  

Anyway, I like to make speculations, I am more often wrong than right, but it is still fun. I am a retail investor and I am silly, so please take what I say with a bag of salt. If my predictions are wrong, I will punish myself by buying Keppel Corp.

6 comments:

  1. Temasek could have just walked away on Monday and don't wait to up to 31 Aug to decide. Possible to revise $7.35 downward.

    ReplyDelete
  2. CW, then I shall get some. Yup. Agreed that the possibility is there.

    If the worst happen, like TI walk off, I think Keppel is still attractive

    ReplyDelete
  3. i think T will not walk away but then T will look silly if the offer price stays the same.

    So Keppel price should drop on Monday, but is it still a bit to early to jump in?

    ReplyDelete
    Replies
    1. Maybe a decision will be easier made, after 12 August when they know SCI SCM demerger is off or on

      Delete
  4. On the other hand T may be trying to prop up or support the price when T made the offer of buying at $7.35.

    i guess T should be in a position better than anyone to estimate whether the conditions/terms will be met when they made the offer.

    It is all like a game to me.

    No?

    ReplyDelete
  5. Yes indeed is a game.
    Is fun. But not life and death.
    This game difficulty level is damn high as u play with the players in the world and they dun restrict beginners or experts, not tier arena.

    So I am prepared to play and lose and enjoy some battlea of win.

    Good thing is there are many ways to win too.

    ReplyDelete