Offshore & Marine - RHB Invest 2020-07-07: Watch Out For More Restructuring; Stay OVERWEIGHT

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

Offshore & Marine - Watch Out For More Restructuring; Stay OVERWEIGHT

  • Keep OVERWEIGHT, as expectations of further restructuring will catalyse all three offshore & marine (O&M)-related stocks’ prices.
  • Top Pick: Keppel Corp (SGX:BN4), with Temasek’s partial share offer as a precursor to restructuring and catalyst to share price upside. While Keppel Corp’s O&M business should be weak over the next few quarters, the property wing could still drive profitability.
  • Our next preference: Sembcorp Industries (SGX:U96), which should emerge from the de-merger with Sembcorp Marine (SGX:S51) without an O&M business and, thereafter, enjoy more stable earnings.



Expect Keppel Corp to see a restructuring if the partial offer goes through.

  • In Oct 2019, Keppel Corp announced Temasek’s pre-conditional partial offer. The latter offered SGD7.35/share to acquire an additional 30.55% stake in the former – taking its stake to 51%. See report: Keppel Corporation - RHB Invest 2019-10-22: Temasek Offer – Prelude For Restructuring; BUY. The aim: To do a comprehensive strategic review and create value for shareholders.
  • We note the inclusion of pre-conditions in the offer, one of which being a “No Material Adverse Change” (MAC). Whilst COVID-19 and the oil price fall has increased the probability of a MAC – more colour should be seen post 1H20’s results release on 30 Jul) – the Oct 2019 announcement also stated: “…Offer will be subject to the satisfaction and/or waiver (at the discretion of the Offeror) of the pre-conditions…”. See Keppel Corp Announcements. This suggests that Temasek can waive the pre-conditions.


Keppel Corp is likely to see respectable contributions from its non-O&M segments.

  • In April, Keppel Corp said China land sales showed promise. The infrastructure unit saw a recurring 1Q20 y-o-y doubling in earnings when excluding the one-time gain from Keppel Infrastructure Trust (SGX:A7RU)’s reclassification to investment from associate. We believe these segments could support 2Q20 earnings.


Sembcorp Industries and Sembcorp Marine to gain from the restructuring…



…but expect a lacklustre 1H20 for Sembcorp Industries and Sembcorp Marine’s earnings.

  • In May, both companies said the short-term outlook was not positive. Sembcorp Industries said COVID-19 lockdowns had reduced energy demand and prices in multiple markets, while Sembcorp Marine expects the losses trend to continue in the foreseeable quarters.


Valuation.






Leng Seng Choon CFA RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-07-07
SGX Stock Analyst Report BUY MAINTAIN BUY 7.300 SAME 7.300
BUY MAINTAIN BUY 2.110 SAME 2.110
BUY MAINTAIN BUY 1.130 SAME 1.130



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