Sembcorp Marine - CIMB Research 2016-09-01: Removed from STI

Sembcorp Marine - CIMB Research 2016-09-01: Removed from STI SEMBCORP MARINE LTD S51.SI

Sembcorp Marine - Removed from STI

  • SMM is being excluded from Straits Times Index in the September quarterly review, with effect from 19 Sep 16.
  • This could be a reflection of its poor performance relative to the index since 2015.
  • We expect slight pressure on its share price in the short term, but portfolio rebalancing impact is minimal as most funds are benchmarked to MSCI indices.


Out of STI

  • In FTSE Russell’s latest quarterly review, SMM (c.0.5% weightage) has been excluded from the STI. Jardine Matheson Holdings (JM) will be added. 
  • JM was removed in 2008 during the revamp of STI to reduce the number of constituents from 50 to 30. The reserve list includes five highest ranking non-constituents of STI by market cap - Mapletree Commercial Trust, Suntec REIT, Keppel REIT, Mapletree Industrial Trust and Singapore Post. 
  • The next review will be on 1 Dec.


Possible pressure on share price but may not be significant

  • STI is usually used only by single-country funds. Most international funds are benchmarked to MSCI indices with mandates that span across regional groups.
  • There could be some pressure on SMM’s share price but price movements from portfolio-rebalancing could be minor.


Challenging operating environment, risk of impairment

  • Order momentum has been weak with orders worth S$320m won YTD, including variation orders. Near-term de-rating catalysts include impairment of inventory for jack-up rigs that are likely to be cancelled by customers with credit risks such as Malaysian Perisai Teknologi (two jack-ups) and Mexican Oro Negro (three jack-ups).
  • Although profits from these rigs were reversed in 2015, we see risks of inventory impairment if SMM is unable to find buyers for these undelivered rigs. We estimate a going rate of c.US$150m for jack-up rigs, which is a c.30% discount to the contract price of c.US$211m.
  • Maintain Reduce and target price of S$0.90, still based on 0.7x P/BV.




LIM Siew Khee CIMB Research | http://research.itradecimb.com/ 2016-09-01
CIMB Research SGX Stock Analyst Report REDUCE Maintain REDUCE 0.900 Same 0.900


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