Offshore & Marine
SEMBCORP MARINE LTD
S51.SI
SEMBCORP INDUSTRIES LTD
U96.SI
KEPPEL CORPORATION LIMITED
BN4.SI
Singapore Yards: Exploring possible scenarios
Bracing for more to come
Considering the types of pre-emptive actions
Pros and cons for merger
May not be the worst yet for companies
- From a high of US$115/bbl in Jun 2014, Brent crude has fallen by about 70% to about US$33/bbl now, and chances are it may stay low for longer.
- It also remains to be seen if oil prices have bottomed, and even if so, oil companies would want to see some sustainability before budgeting for new projects.
- Given the highly oversupplied rig market, things could get worse for Keppel Corp (KEP) and Sembcorp Marine (SMM) due to
- potential provisions in jack-up rig orders in their order books,
- potential provisions from Brazil, and
- likely minimal new rig order flows for at least this year and next.
Considering the pre-emptive actions to take
- It is hence not surprising that there are media reports saying that Temasek is discussing options for KEP and Sembcorp Industries (SCI), in which it has stakes of 21% and 49.5%, respectively.
- Given how KEP and SMM are global champions in their fields – and indeed Singapore wants to nurture globally competitive companies – we expect Temasek to lend its support to either companies should there be a need for more funds.
- We explore the various scenarios that may happen, as well as the likelihood of each. In our view, KEP and SCI are likely to divest their non-core assets or investments that have netted a good return, before cutting their dividends further, and before considering the possibility of raising capital.
Merger talk may grow as downturn bites
- In the longer term, should oil prices stay low longer than expected, a merger of KEP’s O&M division and SMM is not inconceivable, even though there are arguments against it and could be a difficult process.
- Sometimes things happen not by choice, and we consider the pros and cons for such a development.
- Maintain HOLD and S$4.38 fair value estimate on KEP.
- For SMM, we have lowered our fair value to S$1.17 while maintaining SELL.
- Though this leads to a lower fair value for SCI to S$3.42, we maintain our BUY rating as the utilities portion remains undervalued.
Low Pei Han
OCBC Securities
|
http://www.ocbcresearch.com/
2016-01-29
UOB Kay Hian
Analyst Report
3.42
Down
3.88
1.17
Down
1.79
4.38
Same
4.38
