(BUY, S$3.07, TP S$5.46)-Flash
No slowdown in FPSO jobs; maintain BUY. Jurong Shipyard, a wholly owned unit of Sembcorp Marine (SMM), has won a contract to convert a very large crude carrier (VLCC) into a FPSO for MODEC. The contract is valued at S$130m. The FPSO, to be named MV “Tar II”, is expected to be ready by 2Q13. We see further order book opportunities in the FPSO segment: International Maritime Associates (IMA) has identified 53 new projects to be awarded in the next 12 to 18 months and we expect SMM to benefit from this positive trend. We maintain FY11-13F EPS estimates and TP at S$5.46. Maintain BUY.
Eight jackup options remaining; could bid for Statoil semi-sub. We estimate that SMM has an outstanding order book of S$5.8b with deliveries up to 2014. YTD order win of S$2.75b is slightly below our full-year estimate of S$3.5b, but we think this is achievable. The company has eight options for newbuild jackup rigs worth S$2b. Most of these options are in-the-money as rig prices have increased by 5-10% since the start of 2011. Aside from the options, Upstream reported on 30 Sep 2011 that Helix has teamed up with Jurong Shipyard to bid for Statoil’s Category B semi-submersible drilling rig which could be worth more than US$500m.
Valuations. Share price has fallen ~43% since beginning Aug 2011 and is now valued at 10x FY12F P/E and 2.5x FY11F P/B. Net cash of S$1.1b (excluding customer down payments) is equivalent to 18% of its current market cap or S$0.54/share. We expect cash level to be significantly boosted in 3Q11 following the completion of Songa Eclipse. During the global financial crisis, SMM’s valuation reached a low of 1.83x P/B. On current estimates, this would translate into S$2.22/share (based on FY11F BV).
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