SEMBCORP MARINE LTD (SGX:S51)
Sembcorp Marine - Stronger Balance Sheet Post Rights; Keep BUY
- Sembcorp Marine and Sembcorp Industries (SGX:U96) have jointly announced a proposal for a SGD2.1bn recapitalisation and de-merger. This will strengthen Sembcorp Marine’s balance sheet and result in Temasek becoming a direct shareholder of Sembcorp Marine.
- We view the proposal positively, as this will help Sembcorp Marine better ride through the tough business conditions, although the share price could fall in the short term. We see potential for further restructuring beyond the proposal just announced.
- Keep BUY, new P/BV-based SGD1.13 Target Price from SGD1.28. See Sembcorp Marine Share Price.
5-for-1 Sembcorp Marine rights issue.
- Sembcorp Marine (SGX:S51) will issue rights at SGD0.20/rights share, representing a 31% discount to the theoretical ex-rights price (TERP) based on a 5-day volume weighted average price of SGD0.74. See Sembcorp Marine Announcements; Sembcorp Marine Latest News. Sembcorp Industries has undertaken to subscribe for up to SGD1.5bn of rights by setting off the SGD1.5bn subordinated loan previously extended to Sembcorp Marine. Temasek has agreed to sub-underwrite the remaining SGD0.6bn.
Net gearing to plunge post-rights issue.
- As of 31 Dec 2019, Sembcorp Marine has a net gearing of 1.82x, which would have fallen to a proforma 0.45x if the transaction was completed in 2019. Sembcorp Marine’s net tangible assets was SGD1.9bn on 31 Dec 2019, and would have risen to SGD4.0bn on a proforma basis.
- We view the sharply lower gearing a big positive, as this will help Sembcorp Marine better engage potential customers and also to better meet banks’ loan covenants.
De-merger of Sembcorp Marine and Sembcorp Industries via distribution in specie.
- Post rights issue, Sembcorp Industries will distribute its holdings of Sembcorp Marine shares to Sembcorp Industries shareholders. Sembcorp Industries shareholders will receive between 427 and 491 Sembcorp Marine shares for every 100 Sembcorp Industries shares, with no cash outlay required. This will allow both companies to focus on their respective industries. See Sembcorp Industries Announcements; Sembcorp Industries Latest News.
- Temasek will become a significant direct shareholder of Sembcorp Marine, with a stake of at least 29%.
Sembcorp Marine shareholders’ approvals are required:
- An ordinary resolution to approve the rights issue, and a whitewash resolution in respect of the proposed distribution, as this may result in Temasek holding more than 30% of Sembcorp Marine shares. Sembcorp Industries shareholders will separately need to approve the resolution for the proposed distribution. All three resolutions are inter-conditional.
We refined FY21-22 net profit forecasts.
- We lowered Sembcorp Marine’s future interest expenses as borrowings would fall. However, we also lowered Sembcorp Marine’s revenue given the increased uncertainties due to COVID-19.
- See Sembcorp Marine Share Price; Sembcorp Marine Target Price; Sembcorp Marine Analyst Reports; Sembcorp Marine Dividend History; Sembcorp Marine Announcements; Sembcorp Marine Latest News.
Our new Target Price of SGD1.13 factors in the rights issue.
- While the rights issue is a positive, we cut our target P/BV due to the tough business environment. Post rights issue, Sembcorp Marine’s FY20F BV/share will fall to SGD0.335 (from FY20F’s SGD2.01 pre-rights), and our post-rights Target Price is SGD0.36 (1.1x BV: 0.8SD below 5-year average of 1.39x).
- See also report: Sembcorp Industries - RHB Invest 2020-06-09: Future Focus: Energy & Urban; Keep BUY.
Leng Seng Choon CFA
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-06-09
SGX Stock
Analyst Report
1.13
DOWN
1.280
