Sembcorp Marine (DBSVickers)

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Possible award of PTTEP’s Zawtika platform project

LOI awarded to SMM’s SMOE and Saipem, worth under US$600m. According to industry news publication, Upstream, PTTEP has awarded the SMOE-Saipem consortium a LOI for the large central processing platform, worth under US$600m. The work scope of this project will include the fabrication and installation of 20,000 tonnes of platform topsides and an 18,000 tonne jacket. This will be used on PTTEP’s Zawtika natural gas development in Block M9 off Myanmar.

SMOE and Saipem – no strangers to each other. SMOE and Saipem are no strangers to each other, having collaborated on 8 other projects since 1997, the latest being the Premier Oil’s Gajah Baru project off Indonesia, awarded in May 2009. It is understood that the Zawtika platform fabrication work will be executed at SMOE’s Batam yard and Saipem’s new Karimun yard in Indonesia, while Saipem’s vessels will carry out the offshore installation portion.

Meaningful boost to order book. Should this award indeed be true and a contract materializes, this will provide a meaningful boost to SMM’s order wins, which has to date, been severely lagging KEP’s at S$1.5bn vs. S$7.2bn. While the split in contract value between SMOE and Saipem has not been revealed at this juncture (this depends on the work scope undertaken by the respective parties), we have assumed a 40/60 split between SMOE and Saipem, given that Saipem would be taking on additional offshore installation work. Based on this assumption, this will boost SMM’s FY11 YTD order wins / outstanding order backlog to around S$1.8bn/S$5.5bn respectively, with book-to-bill of 1.4x.

No change to numbers, TP and recommendation. While orders have been slow YTD, we remain optimistic that our FY11 S$5bn order wins assumption can be met, implying S$3.5bn worth of orders in the next 6.5 months, inclusive of this latest LOI. This should be underpinned by the exercise of at least a portion of the 8 outstanding jackup options worth an estimated US$1.6bn, and other potential jackup orders from Capital Ship Management Corporation and DryShips, as flagged up previously.