Sembcorp Marine (SMM SP) - DBS Research 2018-03-28: Energean FPSO Contract In The Bag

SEMBCORP MARINE LTD S51.SI

Sembcorp Marine (SMM SP) - Energean FPSO Contract In The Bag

Energean’s EPCIC contractor TechnipFMC has awarded a newbuild FPSO contract to Sembcorp Marine (SMM).
The contract includes the construction of the hull and living quarters as well as the fabrication and integration of various topside modules.
DBS estimates the contract value to be approximately US$400m or ~S$500m.
Reiterate BUY; Target Price S$2.90.

Sembcorp Marine (SMM) has announced that it has secured the EPC contract for the hull and living quarters for a new build FPSO from Energean’s EPCIC contractor – TechnipFMC, which we highlighted earlier this month (Sembcorp Marine: Energean FPSO contract in the bag?).
The contract value is not disclosed but we expect it to be slightly higher than our previous expectation of US$300m (or S$400m) and closer to US$400m (or c.S$500m) as the contract also includes the fabrication and integration of various topside modules, as well as the installation of owner-furnished equipment.

The first major contract win this year contributes approx. 15% of our full-year expectation of S$3bn. We believe the order-flow could be stronger than expected, given the robust pipeline.
Contract wins and margins are two critical factors. On page 2 of our recent report (Sembcorp Marine: Best proxy to ride on O&M recovery), we attempt to address these through a scenario analysis. We believe strong order-flow will drive SMM closer to our current Target Price and further rerating will be driven by earnings recovery. Stock could rerate to 3x book or S$3.90 with cS$5bn revenue and c.8% EBIT margin.

Maintain BUY and Target Price of S$2.90, based on 2.4x FY18 P/BV (0.5SD below mean). The share’s pullback from the recent high of S$2.80 has removed the merger & acquisition premium ascribed, thus providing a better entry point to position for a sector recovery.
We favour Sembcorp Marine as a key proxy to the recovery in the O&G and O&M sectors, with strong order wins as key re-rating catalyst.

Pei Hwa HO DBS Vickers | http://www.dbsvickers.com/ 2018-03-28

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 2.900 Same 2.900