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

Sembcorp Marine (SMM SP) - DBS Vickers 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.



What’s New 

  • 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.


What’s the Impact 

  • 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.


Recommendation 

  • 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



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