(BUY, S$5.20, TP S$6.30)
Single biggest order post-crisis; maintain earnings forecasts. Sembcorp Marine (SMM) announced that its wholly owned subsidiary, SMOE, has won a contract close to S$600m from PTTEPI, boosting its order book to S$5.8b. We maintain our earnings forecasts which assume S$5.5b order win this year on 13-15% operating margins. Maintain BUY with an unchanged TP of S$6.30. Our TP values the stock at 19.5x FY11 P/E and implies 21% upside from its last close.
Project to be completed in Nov 2013. The contract from PTTEP International (PTTEPI) for the integrated processing and living quarters platform is valued at nearly S$600m. Scope of work includes engineering, procurement, construction, transportation, installation, offshore hook-up and commissioning of the platform in Block M9, in the Andaman Sea, offshore Myanmar. Construction is expected to start in Oct 2011 and the project is scheduled for completion in Nov 2013.
Robust demand for shipyard space. We believe share price will be boosted from this news, after falling 13% from its last peak in Apr 2011. With the oil prices trading significantly above the investment threshold of most oil majors, we believe order flows for shipyards will remain robust. YTD, SMM has won S$2.1b new orders and has eight options for newbuild jackup rigs yet to be taken up. We estimate that the total value of the eight options is worth S$2b. Aside from the newbuild market, we expect a strong pickup in production related projects such as FPSO and platforms. SMM will benefit the most from jobs with tight timelines.
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