DBS Equity Research: Wired Daily 23 June 2015

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Publish date: Tue, 23 Jun 2015, 06:22 PM

Nam Cheong - Fairly valued but lacks earnings momentum and muted vessel sales

Sembcorp Marine - Customer Transocean has pushed off delivery for a pair of ultra-deepwater drillships

Vessel sales for Nam Cheong have slowed this year on the back of the oil price slump with only two contract wins YTD. The company has yet to sell 8 vessels from its 2015 built-tostock programme and 18 from its 2016 programme. An added worry is that almost half of the unsold vessels are PSVs, which is probably the most oversupplied segment currently in the OSV space. Given the lack of earnings momentum as well as muted vessel sales, we retain our HOLD call on Nam Cheong with an adjusted target price of S$0.33 per share, pegged to 1.4x P/BV.

In its latest fleet status report, Transocean has pushed off delivery for a pair of ultra-deepwater drillships with Sembcorp Marine's Jurong Shipyard by 24 months. The two drillships are now expected to be delivered in the 2Q19 and 1Q20. This follows the delays for five jack-ups under construction at Keppel twice by an aggregate of 2 years earlier this year. Subsequent to the rescheduling, revenue contribution from these US$1.08bn drillship contracts, will be deferred from 2015-2017 to 2017-2019. We expect the trend to continue. Among the three main type of drilling rigs, jackups are at higher risks of rescheduling or cancellation going by the ratio of unchartered units as a percentage of newbuilds under construction.

Eurozone finance ministers welcomed new Greek proposals for a cash-for-reform deal but said a detailed study was required and it would take several days to determine whether they can lead to an agreement to avert a default. Meanwhile, Moody's Investors Service said European banks are better positioned to weather a Greek euro exit because their financial strength has improved in the past three years while funding markets are less likely to freeze.

Roxy-Pacific Holdings has agreed to buy a 49% stake in a plot of land in Jakarta for 33.38bil rupiah in order to build a hotel. Roxy-Pacific's stake will be part of a larger consortium of investors who are buying the entire site for 68.1bil rupiah. The purchase will be funded internally.

China Environmental Resources Group plans to raise HK$118.8mil (S$20.4mil) by selling new shares at HK$0.63 apiece for working capital. The new shares represent 20% of the group's existing issued share capital. The placement price is at a 17.11% discount to the stock's closing price of HK$0.76 in Hong Kong.

US stocks rose on optimism a deal between Greece and its creditors can be reached soon. European Commission President Jean-Claude Juncker said after the emergency summit in Brussels that he was convinced a final agreement will be reached with Greece this week. German Chancellor Angela Merkel reiterated she wants Greece to stay in the euro area, but the country still has a lot of work to do. European stocks rallied and bond yields fell.

Source: DBS

Nam Cheong (N4E)Sembcorp Marine (S51)Roxy-Pacific (E8Z)China Env Res (RS1)

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