SEMBCORP MARINE LTD (SGX:S51)
Sembcorp Marine - The Worst Appears To Be Behind Us
- 2019 was an ‘annus horribilis’ for SEMBCORP MARINE (SGX:S51) as the company struggled to bring in new orders in the first nine months of the year. This has impacted profitability and we expect the company to report poor 4Q19 and full-year results in late-February.
- However, the global oil price environment and rig market appear to have bottomed out and thus we take a constructive view of Sembcorp Marine and upgrade the stock to a HOLD from SELL with a revised higher target price. See Sembcorp Marine Target Price.
- Entry price: $1.20.
A turnaround in 2020.
- We are cautiously optimistic that this year will be a turnaround story for Sembcorp Marine. The key question will be whether the company can build on the recent order wins and thereby bolster its financials which are in bad shape.
- The upcoming 2019 results, likely to be announced in late Feb-20, will inevitably be bad, given the poor run of new orders in 9M19. Should share price tumble below S$1.20-1.25 in reaction to the poor numbers, we would view the 12-month forward risk-reward scenario in a favourable light and accumulate. See Sembcorp Marine Share Price.
No near-term fix but rig market approaching equilibrium, in our view.
- Our analysis of the global oil & gas industry as well as the rig market indicates that the latter has bottomed out. We believe new orders may take time to reappear but at least utilisation rates for most types of rigs have increased in the past 2-3 years.
Longer-term transformation.
- Longer term, the market will likely focus on the company’s potential transformation into Singapore’s only shipyard, given our view that Temasek could engineer Keppel Corp (SGX:BN4)’s divestment of its offshore marine segment into Sembcorp Marine, assuming that Temasek’s partial offer to increase its shareholding in Keppel Corp to 51% succeeds.
- The mechanics of how Sembcorp Marine v2.0 could be created remains to be seen – in any case, we expect this to be a project that will be undertaken in 2021 and not likely this year.
Upgrade to HOLD with a new target price
- We upgrade Sembcorp Marine to HOLD from SELL with a revised higher target price (previously $1.17, see Sembcorp Marine Target Price).
- Our valuation is based on 1.3x P/B to our 2020F book value. In our view, the 1.3x P/B multiple is fair as it is a 50% discount to the long-term 10-year P/B average of 2.59x and 20% discount to the 5-year average of 1.61x.
- Our suggested entry price is S$1.20.
- See Sembcorp Marine Share Price; Sembcorp Marine Analyst Reports.
Adrian LOH
UOB Kay Hian Research
|
https://research.uobkayhian.com/
2020-01-17
SGX Stock
Analyst Report
1.40
UP
1.17
