SINGAPORE – Investment house CGS-CIMB said Sembcorp Marine’s (Sembmarine) Tuas Boulevard Yard could see a significant pick-up in operations during the coming financial year, reiterating its “add” call and maintaining a target price of 19 cents on the stock.
Analyst Lim Siew Khee, writing after a recent site visit to Sembmarine’s massive Tuas yards recently, noted that the company has seven dry docks, a 134,000 sq m steel fabrication facility, a robotic welding shop and gantry cranes capable of lifting 30,000 tonnes.
“Sembmarine offers the full suite of services in the process chain: design and engineering, procurement, construction, and commissioning,” she noted.
“Management expressed an intention to outsource the bulk of its construction work and focus on the other three processes, as those have higher value-add in the process chain.”
She added that Sembmarine’s gantry cranes give the company the additional edge, as its peers do not have such integration facilities.
“The sheer number of dry docks gives Sembmarine greater flexibility in vessel reshuffling compared with its peers, such as Daewoo Shipbuilding,” Ms Lim said.
CGS-CIMB also highlighted Sembmarine’s strategy of pivoting to larger depth vessels.
“Such vessels are usually involved with offshore wind farms,” Ms Lim said, nothing that renewables constituted about 34 per cent of the company’s $7.11 billion net order book as at nine months of financial year 2022.
Noting Sembmarine’s management’s target to have renewables constitute 40 per cent of annual revenue by financial year 2030, Ms Lim said renewables projects would not only improve the company’s environmental, social and governance standing, but also shield it from downturns in the oil and gas industry.
CGS-CIMB expects Sembmarine’s yard capacity utilisation to rise to 70 per cent by the end of the next financial year, from around 40 per cent to 50 per cent now, and noted that the utilisation was currently limited by supply chain bottlenecks for rare metals and copper, as well as motherboards and chips.
Meanwhile, revenue for order wins secured during the current financial year is expected to flow in during the first half of the upcoming financial year 2023.
Sembmarine is also rebuilding and recalibrating its workforce.
“The management said it expects to repatriate its higher-cost labour by the end of financial year 2022,” Ms Lim said.
Sembmarine currently has about 18,000 employees globally, with about 9,000 to 11,000 in Singapore.
The company plans to further increase its headcount by hiring more workers from Bangladesh and India, said Ms Lim.
CGS-CIMB’s target price of 19 cents for Sembmarine’s stock is based on 1.6 times financial year 2023 forecasted price-to-book value and a 50 per cent discount to the average of two to four times price-to-book in 2013 to 2016. Sembmarine is now trading at 1.1 times price-to-book value.
“We reiterate ‘add’ on better earnings prospects in the light of the upcoming acquisition of Keppel Offshore & Marine (O&M),” Ms Lim wrote, adding that potential re-rating catalysts include a successful integration with Keppel O&M, stronger order momentum and consistent earnings improvement.
On the other hand, impairments, severe cost overruns and project cancellations could derail profitability.
Sembmarine shareholders will be voting on the $4.5 billion merger with Keppel O&M at an extraordinary general meeting to be held before the end of 2022.
Together, the enlarged entity will have an order book of more than $18 billion.
