Offshore & Marine - CGS-CIMB Research 2019-02-01: Do Singapore Yards Need To Join Forces?

Offshore & Marine - CGS-CIMB Research | SGinvestors.io KEPPEL CORPORATION LIMITED (SGX:BN4) SEMBCORP MARINE LTD (SGX:S51) SEMBCORP INDUSTRIES LTD (SGX:U96)

Offshore & Marine - Do Singapore Yards Need To Join Forces?

  • We think Singapore yards could benefit in the short term and gain market share in the offshore sector while Korean’s Hyundai Heavy Industries (HHI) and Daewoo Shipbuilding and Marine Engineering (DSME) deal with integration.
  • Do Singapore yards need to join forces? Ideally, having a focused integrated yard (SEMBCORP MARINE LTD (SGX:S51) plus Keppel O&M) could strengthen Singapore yards’ position.
  • This will also ease capital pressure for SEMBCORP INDUSTRIES LTD (SGX:U96) and KEPPEL CORPORATION LIMITED (SGX:BN4), allowing them to focus on renewables/utility and urbanisation solutions, respectively.



Short-term benefit from HHI and DSME integration

  • We expect Korean’s Hyundai Heavy Industries (HHI) and Daewoo Shipbuilding and Marine Engineering (DSME) to experience some short-term pain as the two mega yards face uncertainties completing the take-over deal as well as given the massive post-deal restructuring exercises.
  • We think the integration between HHI and DSME could soak up resources in the next one to two years. This could bode well for Sembcorp Marine and Keppel Offshore & Marine as well as YANGZIJIANG SHIPBLDG HLDGS LTD (SGX:BS6), allowing them to gain market share in the O&M and shipbuilding space.
  • More immediately, we see Sembcorp Marine benefiting more given its hunger for establishing a track record in the newbuild floating production storage and offloading (FPSO) arena.
  • The most notable FPSO contract at the moment is the c.US$1.4bn-1.5bn Rosebank project for Norway’s Equinor fiercely contended for by Sembcorp Marine and DSME. We think the project is highly likely to be awarded in 2019 with the completion of Equinor’s acquisition of Chevron’s 40% stake in Rosebank in Jan 19.


Does Singapore need to join forces?

  • Following Temasek’s recent S$6bn (c.S$3bn cash and c.S$3bn equity) divestment of Ascendas/Singbridge to CAPITALAND LIMITED (SGX:C31), investors are wondering whether consolidation among the yards is necessary.
  • We see benefits in streamlining the yards and conglomerate structures of SEMBCORP INDUSTRIES LTD (SGX:U96), Sembcorp Marine and Keppel Corporation. If the rig building industry does not recover in the next three years, we think the consolidation of both Sembcorp Marine and Keppel O&M could strengthen Singapore in the large-scale FLNG (Keppel Corporation) and FPSO (Sembcorp Marine) newbuild segment as well as create an O&M design and engineering powerhouse, competing head-on with the Koreans.
  • A hypothetical and ideal structure is one mega yard (Sembcorp Marine + Keppel O&M), one renewables/utility group (Sembcorp Industries) and one urbanisation /infrastructure group (Keppel Corporation).
  • Sembcorp Industries could be the long-term winner as a pure renewable energy/utility group focusing on overseas M&A to grow its capacity, commanding higher valuations. Keppel Corporation could continue to pursue its urbanisation solutions angle (property and infrastructure), backed by asset management capital.
  • The current book values of Sembcorp Marine and Keppel O&M amount to c.S$5.3bn. The hypothetical shareholding structure of the enlarged yard could be in the form of a JV, with Temasek having a majority control stake.


Highlighted Companies


Keppel Corporation


Sembcorp Industries

  • ADD, Target Price S$3.49.
  • We like SEMBCORP INDUSTRIES LTD (SGX:U96) as a late-cycle play if investors want to seek shelter in the utilities and renewable energy names. Its near-term share price could be capped by the shutdown of its India boiler. Stronger earnings from UKPR could be a catalyst.

Sembcorp Marine






LIM Siew Khee CGS-CIMB Research | https://research.itradecimb.com/ 2019-02-01
SGX Stock Analyst Report ADD MAINTAIN ADD 8.410 SAME 8.410
ADD MAINTAIN ADD 2.460 SAME 2.460
ADD MAINTAIN ADD 3.490 SAME 3.490



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