Sembcorp Marine - DBS Research 2021-05-04: Further Inroads Into Renewables

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SEMBCORP MARINE LTD (SGX:S51)

Sembcorp Marine - Further Inroads Into Renewables

• Sembcorp Marine (SGX:S51)'s FY2021 is expected to remain in the red; 1Q21 continued to be affected skilled worker shortages.
• Orderbook is very low at S$1.6bn; order wins is a key catalyst.
• Actively pursuing renewable and production platform projects.

HOLD for uptick in order momentum.

• Target price S$0.20 for Sembcorp Marine is based on 0.7x P/BV (0.5x previously) or 1.5 standard deviation below mean in view of the improving macro outlook. The worst is behind us.
• While order wins should trend up and higher yard activities could narrow operating losses, keen competition is likely to keep Sembcorp Marine in the red in the foreseeable future.
• See
  • Sembcorp Marine's Share Price,
  • Sembcorp Marine's Target Price,
  • Sembcorp Marine's Analyst Reports,
  • Sembcorp Marine's Dividend History,
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Show me the orders!

• While Sembcorp Marine's Share Price tends to be highly correlated to oil prices, order wins remain the key indicator for a turnaround. Its order backlog is running very low at ~S$1.6bn, barely enough to cover one year’s revenue.

Catalyst: Yard restructuring.

• With peer Keppel O&M exiting rigbuilding and fabrication works, we could expect potential collaboration in project tenders locally or regionally. The possibility of a merger between the two cannot be ruled out, as Keppel continues to pursue M&A opportunities for its O&M business, which could be long-term positive for Sembcorp Marine.

Key highlights of Sembcorp Marine's 1Q21 business update:

• Sembcorp Marine expects losses to continue for 2021. The group continues to face supply chain constraints and shortage of skilled workers due to COVID-19 in 1Q21.
• Sembcorp Marine has made further inroads into the renewable energy sector with its recent contract, jointly won with GE Renewable Energy, to supply an electrical transmission system for Sofia Offshore Wind Farm. SMM’s job scope to build an offshore converter platform for the project could be worth S$300-400m (out of a total project value of S$1.12bn) based on our ballpark estimate. Besides, SMM has also established a foothold in Taiwan’s offshore wind sector, fabricating 15 jacket foundations for the Formosa 2 Offshore Wind Farm.
• Orderbook stood at S$1.89bn (incl S$0.29bn repair and upgrade projects) as of end Mar-2021.
• Sembcorp Marine is actively tendering for more than 10 projects, especially in the renewable and gas solutions segment. A similar number of tenders are in progress for the Process Solutions segment covering FPSOs, FSOs and FPUs.
• Sembcorp Marine’s net gearing stood at 0.74x as of end Mar. It secured a S$500m sustainability-linked financing facility, and completed the refinancing of loans that matured in 1Q21.

Pei Hwa HO DBS Group Research | https://www.dbsvickers.com/ 2021-05-04

SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.20 UP 0.140