Sembcorp Marine - Maybank Kim Eng 2015-09-01: Sizeable win but deeper concerns.

SEMBCORP MARINE LTD S51.SI

Sizeable win but deeper concerns 

  • Secured EPC contract worth over USD1b for production platforms for Culzean field in UK. 
  • Bumps YTD new contracts to SGD2.8b, ahead of our FY15F of SGD2.2b. 
  • Positive but we believe insufficient to ward off concerns over offshore rig weakness & Sete Brasil. Maintain SELL & SGD2.00 TP, at 0.55x EV/backlog. 


What’s New 

  • SMM has secured an EPC project worth over USD1b from Maersk Oil North Sea UK. It will construct a central-processing facility, connecting bridges, wellhead platform & utilities and living quarters platform topsides for the Culzean field in the UK sector of the North Sea. Gas production at this high-profile field is expected to start in 2019, in order to meet 5% of UK gas demand in 2020-21. 

What’s Our View 

  • This contract brings SMM's YTD orders to at least SGD2.8b, which tops our FY15F of SGD2.2b. Net orderbook at 2Q15 was SGD10.9b. However, we note the contract value includes equipment content, engineering & procurement components, and subcontracting of detailed engineering work. This implies that despite a higher contract value than its traditional rig-building projects, we think that operating margins could be lower than the 10-12% it has been generating. 
  • While investors are likely to welcome the news, we see it as a lumpy win, as opposed to a turn in new-contract momentum. We also believe it is insufficient to ward off deeper concerns over an oversupplied rig market, weak drilling demand, deferred deliveries, its Brazil overhang and high capex needs. 
  • Maintain SELL with our SGD2.00 TP still at 0.55x EV/backlog. Any positive stock reaction should be an opportunity to sell into strength.


Yeak Chee Keong CFA | http://www.maybank-ke.com.sg/ Maybank KE 2015-09-01
SELL Maintain SELL 2.00 Same 2.00


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