SEMBCORP MARINE - Takeaways from our ASEAN Conference Day (DMG)

BUY

Price S$3.86

Previous S$5.46

Target S$5.46

Maintain BUY. We hosted Sembcorp Marine (SMM) in our ASEAN Conference Day in HK. Key takeaways: (1) Management stayed upbeat on new order intake, especially the potential rig orders from Petrobras. Winning the orders will be strategically important for SMM to build up its long term positioning in Brazil. (2)Management is seeing higher enquiries for semi-subs. Recent fixtures of long term contracts for Seadrill and Ocean Rig are positive. We believe the new enquiries could be related to custom built semisub rigs for the North Sea. Share price has recovered strongly (+27% from its 52-week low) but we see more upside. We have not factored in Petrobras win in our model and Petrobras contribution will only be meaningful from 2013 onwards. We maintain BUY with an unchanged TP of S$5.46. New contract win is the key upside catalyst.

Petrobras tender was the main discussion point. Investors were keen to know more about the Petrobras tender after Upstream reported that Petrobras has opened the bids for the 21 ultra deepwater rigs. SMM has submitted bids to build six rigs in partnership with Seadrill, Odjfell and Sete Brasil. Management is optimistic that the contracts will be awarded soon and SMM has a strong chance to win some orders. Based on our estimate, the tender is worth up to S$5.5b and could nearly double its current order book of S$5.8b. Management is committed to build a long term presence in Brazil and is also eyeing new FPSO integration and conversion projects (aside from the rig projects).

Cash level building up; we estimate >S$1.7b net cash by 3Q11. Cash level is rising fast with the receipt of final payment for Songa Eclipse (estimated at US$420m). We estimate SMM’s cash, excluding excess payments by customers (~S$460m), could go up to S$1.7b or S$0.82/share by 3Q11. Management shared that capex for the New Yard in Tuas will be higher than the initial estimate of S$750m as some of the facilities in Phase Two have been moved forward to Phase One. For the greenfield yard in Brazil, SMM could spend US$300-500m to build an integrated yard.