Sembcorp Marine - CIMB Research 2017-09-11: Adding Work In Brazilian Yard

Sembcorp Marine - CIMB Research 2017-09-11: Adding Work In Brazilian Yard SEMBCORP MARINE LTD S51.SI

Sembcorp Marine - Adding Work In Brazilian Yard

  • YTD orders touched c.S$270m as SMM announced a US$145m hull carry over works contract from Tupi B.V. for the FPSO P-68 project.
  • The hull is an addition to the current contract that SMM secured in 2012 from Petrobras for the construction and integration of FPSO P-68.
  • We are keeping our S$1.5bn order wins target, hoping to hear of more offshore conversion/ Gravifloat contracts.
  • Maintain Add and target price S$1.87, still based on 1.5x FY17F P/BV, the average trading band in 1996-2003, a period of weak oil prices and pre-rig boom. 
  • Contract wins and divesting of delayed rigs could be a key catalyst.

US$145m contract for Brazilian yard

  • SMM’s Brazilian yard, Estaleiro Jurong Aracruz Ltda (EJA), has secured hull carry over works worth c.US$145m from Tupi B.V. for the FPSO P-68 Tupi Project. Tupi B.V. is a consortium comprised of Petrobras Netherlands BV, BG Overseas Holdings and Galp Energia E&P BV. 
  • The hull was built by a Brazilian yard, Rio Grande/Engevix Construcoes Oceanicas that is going through a restructuring. According to industry sources, the hull arrived at EJA in Dec 2016 but we believe a formal contract only became effective now given the complicated status of the troubled yard/Petrobras.
  • The hull carry over contract adds on to the P-68 FPSO topside modules construction and integration contract that EJA secured in Jul 2012, worth US$674m. The FPSO modules work is about 40-50% completed, and on a milestone payment basis. The entire project (hull carry over works and modules) are due for delivery by 3Q18.
  • We expect the project to fetch 6-8% EBIT margin.

Still hoping for S$1.5bn of orders

  • YTD, SMM has secured c.S$270m of orders, which is still below our S$1.5bn order target for FY17. We are hoping to see some FPSO orders as well as Gravifloat export/import gas terminal.
  • Order book stands at c.S$3.8bn excluding Sete Brasil projects.

Other updates

  • We expect net gearing to improve slightly from 2Q17 (1.8x) as SMM received the S$220m proceeds from the Cosco divestment recently.
  • On 31 Aug 17, SMM also said that it has terminated two jack-up rigs contracts with Perisai as the deferment agreement expired. The two contracts were awarded in 2013 at US$208m per rig but have been delayed multiple times following the oil price crash as Perisai was unable to source for charter and funding. There should not be any major impact as SMM has written down the WIP as part of its S$280m provision made in 4Q15 on delayed rigs. However, there could be some revenue reversal in 3Q17.
  • On the divestment of completed rigs, management still hopes to conclude some deals in 2017.

LIM Siew Khee CIMB Research | http://research.itradecimb.com/ 2017-09-11
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