Maintain BUY
Previous Rating: BUY
Current Price: S$3.11
Fair Value: S$5.70
S$130m FPSO conversion work. Sembcorp Marine (SMM) announced recently that its wholly owned subsidiary, Jurong Shipyard, has secured an FPSO conversion project worth about S$130m from MODEC. The VLCC tanker, MV TAR II, will be converted to an FPSO, and SMM's work scope will involve the installation of an external turret mooring system and process facilities. Delivery to MODEC is scheduled to be in 2Q13.
Bound for Brazilian waters. According to an earlier press release by MODEC, the group had signed a contract with OSX 3 Leasing B.V. (subsidiary of OSX Brazil) for the engineering, procurement, construction, installation and commissioning of an FPSO unit for the Campos Basin in offshore Brazil. The complete unit will be delivered to OSX in 3Q13. According to Upstream1 , OSX has received several orders from OGX (both companies are part of the EBX Group, owned by Brazilian tycoon Eike Batista) for five FPSOs and two wellhead platforms with a six floater to be added by year end. Brazil remains as a major source of work where oil related companies are hopeful of securing more orders.
Close relationship with MODEC. This is the eighth FSO/FPSO MODEC will provide in Brazil, and is also the fourth (out of the eight vessels) that Jurong Shipyard will be converting for MODEC, illustrating the close relationship that SMM enjoys with its customer. Three of the other vessels went to Cosco Dalian Shipyard while one went to Keppel.
Secured S$2.8b worth of new orders YTD. SMM has secured S$2.8b worth of new orders YTD, accounting for 62% of our full year estimate. The group has eight outstanding rig options worth about S$2b which we estimate should expire by 1H12. Meanwhile, it is also in the running for tenders such as Statoil's category B well intervention and light drilling semisubmersible rig. As the contract value of individual projects can be substantial (recall PTTEP's S$600m integrated platform order), the securing of two such projects would increase SMM's order book considerably. However, should we fail to hear of more new orders in the near term, the group would be exposed to higher earnings risk and we would look to revising down our new order estimates for the year. Meanwhile, we keep our earnings estimates intact for now and maintain our BUY rating with S$5.70 fair value estimate.
"Sembcorp bags Modec FPSO deal". Upstream. 4 Oct 2011.
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