Sembcorp Marine - the Power of Small Beginnings

Date: 29/03/2021

Source  :  CIMB
Stock  :  Sembcorp Marine       Price Target  :  0.14      |      Price Call  :  HOLD
        Last Price  :  0.08      |      Upside/Downside  :  +0.06 (75.00%)

  • After more than 12 months of order drought, Sembcorp Marine won a contract to design/build/install an offshore converter platform for RWE Renewables.
  • We estimate Sembcorp Marine’s work scope to be in the range of S$200m as the contract is awarded to a consortium with GE Renewable Energy’s Grid Solution.
  • Expect positive movement of Sembcorp Marine's share price from the news. Retain our target price at S$0.141 on 0.5x CY21F P/BV. Order wins are key catalysts. Reiterate HOLD.

Long-awaited Sofia Windfarm Project

  • Sembcorp Marine (SGX:S51) and GE Renewable Energy’s Grid Solutions (GE) have been awarded a contract from RWE Renewables, to supply the high voltage direct current (HVDC) electrical transmission system for the Sofia Offshore Wind Farm.
  • Sembcorp Marine and GE started early design works for the project in July 2020, after being chosen as the preferred supplier of the HVDC electrical transmission system. The HVDC system represents Sofia’s second-largest contract and is worth ~£600m (S$1.12bn).
  • The contract work scope for the HVDC system comprises the design, manufacture, installation, commissioning and maintenance of the offshore converter platform (OCP) and the onshore converter station (OCS), including all ancillary equipment. Sembcorp Marine’s scope of work includes the design, construction, installation and commissioning of the OCP. The OCP comprises a 17,000-tonne topside and jacket foundation structure piled into the seabed 220km from the nearest shore. It will be the most powerful and most remote OCP ever built.

Order Win Is Positive, Profitability Is More Important

  • We estimate Sembcorp Marine’s portion of work could be in the range S$200m. On-site delivery of the project is scheduled to be in 2023.
  • For reference, Sembcorp Marine clinched a similar renewable project in Oct 2018 for the EPC, hook-up and commissioning of two topsides for Hornsea 2 Offshore Wind Farm in North Sea. The two topsides Sembcorp Marine built weighted ~8,700 tonnes. The contract worth more than S$200m was announced together with a design-and-construction roll-on/roll-off passenger (ropax) ship project comprising three identical plug-in ropax ferries.
  • Sembcorp Marine did not win any contract in 2020; hence, this win is positive and we expect more orders ahead. However, profitable execution is critical given that we expect the company to report losses over the next few years. We have penciled in S$1bn order wins for FY21F (2019: S$1.5bn).

Reiterate HOLD and Target Price at S$0.141 for Sembcorp Marine

  • Our HOLD call on Sembcorp Marine is premised on deep oil price. Our target price is based on 0.5x CY21F P/BV or close to -1 s.d. from trading valuations since 2020.
  • Key downside risks include protracted order wins could re-rate the stock.

Source: CGS-CIMB Research - 29 Mar 2021

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Sembcorp Marine 0.08 0.00 (0.00%) 39,843,000 

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