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Author: kimeng   |   Latest post: Thu, 15 Feb 2018, 03:49 PM

 

Sembcorp Marine: Statoil on Verge of Awarding Castberg Topside Contract

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  • Statoil could award its Castberg FPSO's topside contract this week
  • Topside construction and integration could be worth more than US$1bn
  • Norwegian Kvaerner appears to have an upper hand; but SMM could have a role to play
  • Buy SMM on recent pullback; TP of S$3.10

What's New

According to Upstream, Statoil could announce its choice of contractor to provide the topside of floating production, storage and offloading
(FPSO) vessel for its Johan Castberg development in the Barents Sea, as soon as this week.
 

What's the Impact

While industry sources emphasised that no outright winner has emerged for the work, Norwegian Kvaerner appears to have an upper hand for the  job of carrying out topside construction and integration management for the FPSO.
 
Nevertheless, Sembcorp Marine (SMM), which secured the contract to build the hull and living quarters for the Castberg FPSO in December  2017, has also been involved in the bidding and the prospect of SMM playing a role should not be ruled out.
 
Industry sources estimate that the topside construction and integration jobs could be worth more than US$1bn, which could be split into two  separate awards.
 
Please refer to our recent report Singapore Rigbuilders: New orders drive rerating on order win expectations for Singapore rigbuilders.
 

Recent Price Weakness

SMM stock price plunged 12% in the last 20 mins of trading hours on 12 Feb. SMM responded to SGX query, confirming that the company is not  aware of any information or possible explanation for the unusual trading activities. The likelihood of corruption scandal hit seems low at  this point. The other suspicions like rights issue to augment balance sheet or weak 4Q17 results (due on 21st Feb) are less likely to  trigger such a selloff, in our view.
 
We highlighted earlier that SMM's stock prices were held up by 'privatisation' spin, during the recent stock market correction. So, if the  latest market talk is that the privatisation deal may be off the table, then the M&A premium, which we estimate to be 40-50 Sct (when stock  hit S$2.80) could be given back.

Recommendation

We hold on to our belief of Oil and Gas recovery and SMM as one of the best proxies to ride the O&M recovery with a strong order win  pipeline. The price correction could provide a "healthier" entry point ie without M&A premium, for investors who look to gain exposure in O&G sector.
 
Reiterate our BUY recommendation on SMM and TP of S$3.10 (2.4x PB), which is based on fundamental sector recovery.
 
Source: OCBC Research - 13 Feb 2018
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Chart Stock Name Last Change Volume 
Sembcorp Marine 2.52 +0.07 (2.86%) 6,667,800 

Market Buzz

Date Type Subject
13-Feb-2018 Price Target Sembcorp Marine: Statoil on Verge of Awarding Castberg Topside Contract
Source : OCBC, Price Call : BUY, Price Target : 3.10
Last Price : 2.52, Upside/Downside : +0.58(23.02%)
12-Feb-2018 Announcement Response to Query Regarding Trading Activity::
12-Feb-2018 Announcement Query Regarding Trading Activity::

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