Sembcorp Marine - CIMB Research 2015-11-18: Small order but much needed

Sembcorp Marine - CIMB Research 2015-11-18: Small order but much needed SEMBCORP MARINE LTD S51.SI 

Sembcorp Marine - Small order but much needed 

  • SMM has secured a contract from Japanese MODEC to build a floating storage offloading (FSO) vessel for delivery in 1Q18 for Maersk Oil. 
  • We estimate the contract value to be US$150m-180m, with EBIT margin of 10%. This brings YTD order win to about S$3bn and order book to c.S$11.8bn. 
  • No changes to FY15-17 EPS and target price. 

Floating storage offloading vessel contract 

  • SMM has secured a contract to design and build a new FSO vessel for MODEC on full turnkey project basis, including engineering, procurement, construction and commission. The vessel is due for delivery in 1Q18 and will be deployed in the Culzean field, North Sea for Maersk Oil. MODEC will supply the internal turret and topside modules (vapour recovery unit and metering skid) that SMM will install and integrate. 
  • The FSO will be equipped to receive 25,000 barrels of condensate per day and store up to 350,000 barrels. We estimate that the contract will be worth US$150m-180m. 
  • SMM was awarded a c.S$1.4bn contract by Maersk in Sep 2015 to build the central processing facility for deployment in the Culzean field. We believe that this gave SMM an advantage in securing the FSO contract. 

Low-risk contracts won YTD 

  • Although this is the first time that SMM is building a FSO on turnkey basis, it is less technically complicated compared to a newbuild floating, production, storage, offloading (FPSO) vessel. We consider SMM’s YTD contracts of S$3bn to be of low risk, with milestone payments from established customers for specialised offshore equipment (not commoditised). 

Order book risks from Brazil remain 

  • We are keeping our Reduce recommendation, given the uncertainty surrounding the Sete Brasil contracts (50% of its order book). Our worst-case scenario (all seven units are cancelled) shows possible 20-30% downside to our FY16-17 net profit estimates. 
  • Our target price of S$2.03 is unchanged, still based on 11x CY17 P/E (1 s.d. below the historical average.

LIM Siew Khee CIMB Securities | http://research.itradecimb.com/ 2015-11-18
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