Sembcorp Marine - OCBC Investment 2018-01-22: An Offer Coming?

Sembcorp Marine - OCBC Investment 2018-01-22: An Offer Coming? SEMBCORP MARINE LTD S51.SI

Sembcorp Marine - An Offer Coming?

  • Offer in the works? 
  • Trading at 1.9x P/B.
  • 20% premium translates to S$2.76.

Two price spikes last week. 

  • Sembcorp Marine’s share price spiked 9.4% on Tue last week and another 9.5% on Fri. There can be several reasons behind this, such as
    1. a potential privatisation or divestment by Sembcorp Industries,
    2. no fine or small fine with regards to Brazil as opposed to Keppel Corp, or
    3. a big order is coming up. 
  • However, judging from the recent price action, the possibility of scenario 1 or 2 seems more likely.

Past transactions in 2016 and 2017 

  • Last year, COSCO Shipping International Singapore (formerly known as COSCO Corp Singapore) disposed of its shipyard assets in China to its parent at a P/RNAV basis of 0.92x, which was higher than the 0.7x implied P/NAV for Vard Holdings in 2016 during the voluntary general offer. 
  • Sembcorp Marine also disposed of its interest in COSCO Shipyard in 2016 at an implied P/NAV of 1.22x. However, we do not believe Sembcorp Marine deserves similar low valuations given its established track record in a wider range of premium products, higher ROEs and the potential to secure new orders in promising segments such as FLNG.

20% premium from current levels is about S$2.76/share 

  • Currently, Sembcorp Marine is trading at 1.9x P/B, which is higher than the +1 s.d. level based on a three year historical average. In mid-2015, Sembcorp Marine also traded at 1.9x book and Brent then was around US$66/bbl which is similar to the current price.
  • We have been valuing Sembcorp Marine at 1.85x book but had earlier trimmed the book to be conservative post Keppel Corp’s S$590m fine. We adjust our estimated book value and increase our P/B to 2.0x, arriving at a fair value estimate of S$2.37.
  • Should an offer for Sembcorp Marine materialize, there could still be some upside supposing the price offered is higher, which is typically the case to entice shareholders to bite. Assuming a 20% premium from current levels, this would translate to about S$2.76/share. 
  • We maintain our HOLD rating based on our fair estimate of S$2.37, but do not exclude the possibility of further price appreciation in the event of a corporate action.

Low Pei Han CFA OCBC Investment | http://www.ocbcresearch.com/ 2018-01-22
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 2.37 Up 1.780