KEPPEL CORPORATION LIMITED (SGX:BN4)
SEMBCORP MARINE LTD (SGX:S51)
Offshore & Marine - Brazilian Rigs Set Free
- We estimate a range of US$102m to US$316m of new contracts each for Keppel Corporation and Sembcorp Marine to complete the Sete Brasil (SB) rigs for Magni Partners.
- Keppel Corporation will have full titles of the remaining uncompleted 4 SB rigs which may allow it to sell to potential buyers. This could add US$695m-1bn of work.
- The above development is positive for the yards. Maintain ADD for Keppel Corporation (Target Price: S$8.41) and HOLD for Sembcorp Marine (Target Price: S$1.26).
Keppel Corporation taking over ownership of the Sete Brasil rigs
- Magni Partners (Magni), the investment company of Borr Drilling founder Tor Olav Troim has struck a deal with Sete Brasil and its creditors to buy four unfinished ultra-deepwater rigs from Keppel Corporation (SGX:BN4) and Sembcorp Marine (SGX:S51)’s two Brazilian yards. These rigs will be chartered to Petrobras at US$299k/day over a 10-year lease.
- Keppel Corporation made an announcement this morning on the settlement with Sete Brasil and we expect Sembcorp Marine to follow suit with its announcement soon.
- As part of the settlement, Keppel Corporation is in discussions with Magni to complete the construction of the first two semi-submersibles (semi-sub) - Urca and Frade previously contracted with Sete Brail. These rigs are c.92% and 70% completed respectively.
- In addition, Keppel Corporation will also take over the ownership of the remaining four uncompleted Sete Brasil semi-subs - Bracuhy, Portogalo, Mangaratiba and Botina.
- A total sum of US$260m associated with Urca and Frade will be recongised as undisputed debt in Sete Brasil’s court-approved Judicial Reorganisation Plan. The amount will be paid to Keppel Corporation proportionally and pari passu with the other creditors of the Sete Group as part of, and out of the proceeds of, its Judicial Reorganisation Plan.
- Keppel Corporation has provided a total of S$475m and collected US$1.3bn to date for the disputed six SB semi-subs.
Cost to complete = new contracts for order book
- If we use the last transacted semi-subs contract with Awilco (US$425m) in Mar 19 and the original contracted price of c.US$800m for Sete Brasil, Keppel Corporation could add a total of US$166m to US$316m of work to complete the two semi-subs. These rigs are required to be completed in Brazil given the charter with Petrobras. Using similar basis, we estimate Sembcorp Marine could add c.US$102m-190m for its two drillships.
- On a more bullish note, the remaining 2 advanced completed rigs (unit 3 and 4 respectively) could also be translated to c.US$1bn of new contracts each if there are new buyers. We think the last few units that are less than 10% completed will not be pursued further.
- As of 1H19, Keppel Corporation’s order book stood at S$5.5bn with S$1.9bn of orders YTD. Sembcorp Marine’s order win totalled S$575m with an estimated order book of c.S$2.5bn.
Maintain OVERWEIGHT on the capital goods sector
- Keppel Corporation is trading at undemanding valuations of 0.9x CY19F P/BV, or -1 s.d. of its 10-year mean. Catalysts include stronger enbloc property sales and offshore orders. See Keppel Corporation share price.
- Sembcorp Marine is trading at 1.1x CY19F P/BV (below -1 s.d. of 10-year mean). 3-month 20% weakness has priced in the guided losses for 2019F and prolonged drought in orders. See Sembcorp Marine share price.
LIM Siew Khee
CGS-CIMB Research
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https://www.cgs-cimb.com
2019-10-08
SGX Stock
Analyst Report
8.410
SAME
8.410
1.260
SAME
1.260
