Sembcorp Marine (SMM SP) - DBS Research 2018-02-13: Statoil On Verge Of Awarding Castberg Topside Contract

Sembcorp Marine (SMM SP) - DBS Vickers 2018-02-13: Statoil On Verge Of Awarding Castberg Topside Contract SEMBCORP MARINE LTD S51.SI

Sembcorp Marine (SMM SP) - Statoil On Verge Of Awarding Castberg Topside Contract

  • Statoil could award its Castberg FPSO’s topside contract this week.
  • Topside construction and integration could be worth more than US$1bn.
  • Norwegian Kvaerner appears to have an upper hand; but SMM could have a role to play.
  • Buy SMM on recent pullback; Target Price of S$3.10.

What’s New 

  • According to Upstream, Statoil could announce its choice of contractor to provide the topside of floating production, storage and offloading (FPSO) vessel for its Johan Castberg development in the Barents Sea, as soon as this week.

What’s the Impact 

  • While industry sources emphasised that no outright winner has emerged for the work, Norwegian Kvaerner appears to have an upper hand for the job of carrying out topside construction and integration management for the FPSO.
  • Nevertheless, Sembcorp Marine (SMM), which secured the contract to build the hull and living quarters for the Castberg FPSO in December 2017, has also been involved in the bidding and the prospect of SMM playing a role should not be ruled out.
  • Industry sources estimate that the topside construction and integration jobs could be worth more than US$1bn, which could be split into two separate awards.
  • Please refer to our recent report Singapore Rigbuilders: New orders drive rerating on order win expectations for Singapore rigbuilders.

Recent Price Weakness 

  • SMM stock price plunged 12% in the last 20 mins of trading hours on 12 Feb. SMM responded to SGX query, confirming that the company is not aware of any information or possible explanation for the unusual trading activities. The likelihood of corruption scandal hit seems low at this point.
  • The other suspicions like rights issue to augment balance sheet or weak 4Q17 results (due on 21st Feb) are less likely to trigger such a selloff, in our view.
  • We highlighted earlier that SMM’s stock prices were held up by ‘privatisation’ spin, during the recent stock market correction. So, if the latest market talk is that the privatisation deal may be off the table, then the M&A premium, which we estimate to be 40-50 Sct (when stock hit S$2.80) could be given back.


  • We hold on to our belief of Oil and Gas recovery and SMM as one of the best proxies to ride the O&M recovery with a strong order win pipeline.
  • The price correction could provide a “healthier” entry point ie without M&A premium, for investors who look to gain exposure in O&G sector.
  • Reiterate our BUY recommendation on SMM and Target Price of S$3.10 (2.4x PB), which is based on fundamental sector recovery.

Pei Hwa HO DBS Vickers | http://www.dbsvickers.com/ 2018-02-13
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 3.100 Same 3.100