Sembcorp Marine - OCBC Investment 2021-11-15: Likely More Clarity In 1Q22

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SEMBCORP MARINE LTD (SGX:S51)

Sembcorp Marine - Likely More Clarity In 1Q22

• Waiting for updates on potential Keppel O&M and Sembcorp Marine combination.
• Continue to expect losses in 2H21 with challenges in execution.
• Hopes for more orders in 2022.

Sembcorp Marine's 3Q21 business update

• Sembcorp Marine (SGX:S51) recently provided a 3Q21 business update. Net gearing was 0.4x as at end 9M21, after the recent rights issue. According to management, order visibility is better, with Sembcorp Marine developing more than 10 tender opportunities in the Renewable Energy and Gas Solutions segment.
• Sembcorp Marine is also pursuing projects for Process Solutions covering FPSOs, FSOs and FPUs. For newbuild rigs however, more time is needed before demand returns. Orderbook was around S$1.4b but the group hopes to secure more orders in 2022.

Next step: waiting for updates on potential combination of Keppel O&M and Sembcorp Marine

• Recall that both Sembcorp Marine and Keppel Corporation (SGX:BN4) had earlier entered into a non-binding MOU with regards to exclusive negotiations with a view to combine Keppel O&M and Sembcorp Marine, with the objective of creating sustainable value over the long term for stakeholders. The Combined Entity is envisaged to be a listed entity, and Sembcorp Marine's shareholders will hold shares in the Combined Entity, while Keppel Corporation will receive shares in the Combined Entity and a cash consideration of up to S$500m (or a cash component with the economic equivalent effect).
• As mentioned in our earlier report, terms of combinations are still being discussed; we expect more certainty by 1Q22.

Challenges in execution

• Although order visibility has improved, in 2H21, however, losses should still continue and may be in the range of 1H21. There may be more delays and increase in project costs due to delays in equipment deliveries due to border closure in some countries, longer lead time due to supply chain constraints and labour shortages. Disruption in operations due to COVID-19 is likely to lead to cost overruns.
• Sembcorp Marine fares well in labour management and governance, but is below industry average for toxic emissions & waste as well as opportunities in clean tech.
• We maintain our fair value estimate of S$0.09 on Sembcorp Marine.
• See
  • Sembcorp Marine's Share Price,
  • Sembcorp Marine's Target Price,
  • Sembcorp Marine's Analyst Reports,
  • Sembcorp Marine's Dividend History,
  • Sembcorp Marine's Announcements,
  • Sembcorp Marine's Latest News.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2021-11-15

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