Offshore & Marine Sector - UOB Kay Hian 2015-09-01: Cutting Target Prices On A Lower Oil Price Benchmark (Part 2 of 2)

Offshore & Marine Sector

Offshore & Marine – Singapore Cutting Target Prices On A Lower Oil Price Benchmark (Cont') 

 Nam Cheong (SELL/Target: S$0.13). 

  • Faced with an inventory of 8 unsold vessels for 2015 and a drought of contract wins since the start of the downturn, Nam Cheong’s Buildto-Stock (BTS) model is challenged. We have ascribed a 20% discount (2016F P/B: 0.6x) in lieu of its negative earnings growth outlook and growing inventory of BTS vessels. 

 Sembcorp Marine (HOLD/Target: S$2.45). 

  • Still no light at the end of the tunnel in Brazil. Some non-Brazilian customers are facing liquidity problems while the rig market is in a deep recession. We value SMM at 2016F P/B of 1.5x. This is at a 25% discount to our estimated P/B of 2.0x with Brent oil price at US$60/bbl. We have widened the discount to account for a deteriorated balance sheet. 

 Sembcorp Industries (BUY/Target: S$4.69). 

  • SCI is expected to expand its effective power generation capacity by 25%, 24% and 14% yoy in 2015, 2016 and 2017 respectively. SCI’s key risk remains the current downturn in its marine business. Our top stock pick among the large caps. Our target price for SCI is based on SOTP and a lowered target price of S$2.45 for SMM. 

 Pacific Radiance (BUY/Target: S$0.71). 

  • The company has one of the most experienced management teams within the sector. Trading at 2015F P/B of 0.4x, Pacific Radiance is at cyclical trough valuation. This is below the OSV-owner segment’s cyclical P/B trough of 0.5x during the Great Recession in 2008-09, which saw the Brent oil price falling below US$40/bbl. 

 Triyards Holdings (BUY/Target: S$0.81). 

  • For a yard with earnings visibility to 2017, gross margins of 22% and a near tripling of contract wins from FY14 in a downturn, Triyards is a stock with deep value. The stock offers 17% FY2016 ROE (sector: 12%) at a low net gearing of 30% and trades at attractive valuations of 0.4x P/B and 2.7x PE. 
  • The stock has been unduly sold down in the recent oil price crash despite its outstanding fundamentals. 

Nancy Wei | Foo Zhiwei | http://www.rhbgroub.com/ RHB Securities 2015-09-01
SELL Maintain SELL 0.13 Down
HOLD Maintain HOLD 2.45 Down
BUY Maintain BUY 4.69 Down
BUY Maintain BUY 0.71 Down
BUY Maintain BUY 0.81 Down