Singaporean conglomerate Keppel Corp posted a 21 percent drop in its quarterly profit and warned it did not expect a speedy recovery in the offshore and marine market.
The conglomerate and its smaller cross-town rival Sembcorp Marine have been hit by an oversupply of offshore oil drilling rigs, with customers delaying contracts and refraining from placing new orders with oil prices expected to stay lower for longer.
“Despite some pick-up in activity in the offshore market, the general consensus is that, with the prevailing uncertainty in the oil market, and oversupply in the jackup market, a quick recovery is unlikely,” said CEO Loh Chin Hua.
Keppel – which got most of its earnings from its property division in the quarter – reported a net profit of S$161 million ($118 million) for the three months ended June, versus S$205 million a year ago.
Revenue from the Offshore and Marine (O&M) division, that builds offshore drilling rigs and support vessels, fell 38 percent to S$449 million due to a drop in work volumes.
Keppel has outlined the liquefied natural gas (LNG) market as a focus area as it tries to boost O&M returns.
The company is betting on expectations that demand will grow for the fossil fuel, which is cleaner than oil or coal and is also versatile, with potential uses ranging from power generation to heating and as a transport fuel.
This year Keppel is on track to deliver the world’s first conversion of a ship into a floating liquefaction vessel to Golar LNG and is building small-scale LNG carriers. It has a joint venture with Royal Dutch Shell to supply LNG bunkering operations services in Singapore.
The O&M division recorded a net order book of S$3.4 billion as of June 30. That excludes orders from one of its biggest customers, rig leaser Sete Brasil Participacoes SA, which filed for bankruptcy protection amid a corruption scandal.
“We will continue to build new capabilities, look for new markets in the gas industry and non-oil and gas plays such as Jones Act vessels and dredgers,” Loh said.
The Jones Act mandates the use of U.S.-flagged vessels to transport merchandise between U.S. coasts.
“We will also explore opportunities to re-purpose our offshore technology for other uses,” Loh added.
Keppel’s property division posted a 16 percent rise in quarterly revenue, helped by higher home sales. Keppel sold about 2,470 homes in the first half, up 15 percent from a year ago.
Ang Wee Gee, CEO of its property business, said Singapore’s residential real estate market, which has been hit in recent years by cooling measures, was bottoming out and that the company would look at opportunities to increase its land bank in the city-state.
Earlier this week, the company’s unit Keppel Telecommunications & Transportation Ltd along with Malaysia’s Axiata Group Bhd and Singapore Press Holdings called off a strategic review of their stakes in telecom operator M1.
“For us, we will continue to review our options,” Loh said when asked about the company’s plans for M1 at its results briefing on Thursday.
Shares of the company, in which Singapore state investor Temasek is the biggest shareholder, have risen 13 percent so far this year versus a 14 percent rise in the broader market.