Sembcorp Marine - Better Order Outlook, Workers Shortage Risk

Date: 03/05/2021

Source  :  CIMB
Stock  :  Sembcorp Marine       Price Target  :  0.23      |      Price Call  :  HOLD
        Last Price  :  0.08      |      Upside/Downside  :  +0.15 (187.50%)

  • Sembcorp Marine is tendering for 10 projects in renewable/gas projects worth between < S$100m and ~S$1bn. Yard is at peak level considering worker constraints.
  • In its 1Q21 business update, Sembcorp Marine reported a +6% q-o-q order book (ex-ship repair) of S$1.6bn. We estimate recent RWE Sofia project won at ~S$500m.
  • We keep our 2021F order win forecast of S$1bn. Maintain HOLD but up Sembcorp Marine's target price to S$0.23, based on 0.8x P/BV (-0.5 standard deviation of 2-year average). Net loss guided by Sembcorp Marine for FY21F.

Sembcorp Marine's Order Book Up 6% Q-o-q to S$1.6bn Ex-ship Repair (4Q20: S$1.51bn)

  • Including ship repair, Sembcorp Marine (SGX:S51)’s order book for 1Q21 stood at S$1.89bn (4Q20: S$1.82bn). Assuming a similar pace of workload in 1Q21, we estimate the recent RWE Sofia Offshore Wind Farm contract for high voltage direct current (HVDC) electrical systems offshore substations to be worth ~S$500m.
  • As early works for the project were carried out in 2020, Sembcorp Marine could start recognising some revenue from the recent win from 2H21F.

Improved Order Win Visibility, Making Inroads to More Renewables

  • Competition and COVID-19 uncertainty aside, Sembcorp Marine noted that market sentiment has improved hydrogen and carbon capture technology. This includes the recent MOU with Penguin International (SGX:BTM) and Shell to design a hydrogen fuel cell system for a Roll-on/Roll-off vessel.
  • We think in the near term, contracts well as floating windfarm, could be a longer-term story.

Lower Requirement for Workers

  • Despite worker constraints, Sembcorp Marine has rest days on weekdays to comply with regulatory safety measures.
  • Most projects (except for newly-secured in 2021) are 2/3 completed, hence manning requirements are reduced.

Transocean 2/3 Completed, in Discussions for Final Delivery

  • According to Transocean, one rig is due for delivery in 4Q21 and the other unconfirmed. We think there could be further delays into 1H22F. To recap, the rigs were awarded in Feb 2014 and deferred for delivery from 2018.
  • Net gearing for Sembcorp Marine was flattish q-o-q at 0.74x with S$100m drawn from rights issue for working capital in 1Q21.
  • We think downside of fund raising by Sembcorp Marine could be uncontrolled outbreak of pandemic among workforce.

Source: CGS-CIMB Research - 3 May 2021

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

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