Sembcorp Marine - Outlook Improving
- Sembcorp Marine’s forward earnings should be supported by its SGD4.7bn orderbook.
- The stabilisation of crude oil prices should be positive for the company, as it would be a beneficiary of development projects and we maintain our FY17F new orderbook of SGD1bn.
- However, we maintain our NEUTRAL call as we believe valuations are unattractive, even with the expectation of higher earnings.
- Our raised TP of SGD1.46 (5% downside, from SGD1.33) is based on 16x FY17F P/E (from 10x), which is the 10-year average P/E for Sembcorp Marine.
Orderbook of SGD4.7bn.
- Sembcorp Marine’s current orderbook stands at SGD4.7bn, a healthy mix of drillships, floaters, jack-up rigs, offshore platforms and semi-submersibles. The current orderbook excludes SGD3.1bn of Sete Brasil drillships.
- Although a long shot at this point – as Sete Brasil is undergoing restructuring – the resumption of the contract could be a catalyst for Sembcorp Marine.
- In FY16, orderbook replenishment came in at only SGD320m, which is the lowest level seen for the past eight years. We understand that the majority of its orderbook is on progress payment terms.
Shifting focus to non-drilling solutions.
- With the improvement in crude oil prices, Sembcorp Marine is experiencing an increase in enquiries for non- drilling solutions, which we believe is a sign that development projects are not far off.
- We maintain our assumption of SGD1bn of new orderbook for FY17 coming from floaters, offshore platforms and non-drilling solutions.
- We believe the outlook is improving for Sembcorp Marine, however, we believe its valuation is unattractive despite our higher FY17F earnings. As such, we maintain NEUTRAL with a higher TP of SGD1.46, based on 16x FY17F P/E – which is the 10 year P/E average for the company.