Sembcorp Marine - CIMB Research 2017-09-19: Capturing Market Share

SEMBCORP MARINE LTD S51.SI

Sembcorp Marine - Capturing Market Share

We estimate Sembcorp Marine (SMM) will bag around US$440m-500m in contracts for at least two large Compressed Gas Liquid (CGL) carriers from American company, SeaOne.
This news is positive for SMM and we think the contract will materialise by end-2017F or early 2018F, lifting the lacklustre order momentum YTD.

Maintain Add and our target price of S$1.87, still based on 1.5x FY17F P/BV (in line with the average trading band in 1996-2003, pre-rig boom).

SMM secured a LOI for the design and building of at least two large Compressed Gas Liquid (CGL) carriers from Houston SeaOne Caribbean LLC (Unlisted). The vessels will be deployed for SeaOne’s Caribbean Fuels Supply Project. Front-end engineering design (FEED) studies for the project are in progress.
According to SMM’s announcement, the vessels will be 366m long with 2bn cubic feed (Bcf) capacity and be equipped with SeaOne’s CGL® technology and systems to transport CGL cargoes to receiving terminals in the Caribbean, Central and South American regions, from a CGL production facility now under construction at the Port of Gulfport in Mississippi, US. The CGL carriers will run on IMO Tier II diesel engines with a maximum sailing speed of 20 knots.

According to industry sources, SeaOne signed a LOI with Samsung Heavy Industries (10140 KS, Reduce, TP:W9,400) in May 2017 for 12 articulated tug/barge marine vessels that will also utilise SeaOne’s CGL patented technology and system for a total US$1.5bn or US$125m each. The vessels are likely to be 260m long and have maximum speed of 14 knots.
Assuming higher specifications and larger size, we estimate the two Panamax-sized CGL carriers that SMM is likely to secure would be worth c.US$220m-250m each, bringing potential total contract size to US$440m-500m or S$585m-650m.
Given that this would be a shipbuilding contract, we estimate EBIT margin of 6-8% for these projects.

SMM’s orders YTD are lacklustre at c.S$270m but the company is still hoping to see some FPSO and gas-related contract wins.
We believe the contracts will materialise by end-2017F or early 2018F, which could excite the market, given the large size.
Stronger-than-expected order wins and successful sale of delayed rigs are potential key catalysts for SMM

LIM Siew Khee CIMB Research | http://research.itradecimb.com/ 2017-09-19

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