The sharp drop in Sembcorp Marine stock means the rig-builder has become an attractive prospect for privatisation by parent Sembcorp Industries, said Maybank Kim Eng Research.
SembMarine shares have tumbled more than 46 per cent in the past year amid the collapse in oil prices and are now at around eight-year lows. They closed down 1.7 per cent or three cents to $1.72 yesterday.
The firm is "arguably staring at its greatest set of challenges in its history", said Maybank Kim Eng in a note. It cited a combination of limp rig demand, rig oversupply, risks of order cancellations and late or non-payment and uncertainties over its $1 billion new-yard investment.
Maybank Kim Eng added that the firm's US$5.6 billion (S$8 billion) seven-drillship contract in Brazil is also at risk due to a major corruption probe at state energy giant Petrobras.
"Customers are now delaying deliveries or terminating contracts and SembMarine cannot monetise construction work it has done," said Maybank Kim Eng.
"Having had net cash since 1988, it turned net debt in 2015, with a net gearing of 0.64 times (in the third quarter last year).
"If the rig market worsens and it cannot collect due payments, it may require more financing."
Maybank Kim Eng believes it would "make sense" for Sembcorp to privatise SembMarine, instead of injecting capital through a rights issue. "Privatising would allow Sembcorp to use its balance sheet to support SembMarine's working-capital needs until an industry turnaround. Based on our analysis, Sembcorp has the means to do so.
"Another possibility is Temasek's purchase of the remaining 39 per cent SembMarine stake. Temasek may want to do this if it sees rig- and ship-building as a strategic industry in Singapore."
It added: "If industry conditions worsen, requiring cash calls, or (SembMarine's) stock price drops nearer to its book value, we believe a privatisation is highly likely."
Maybank Kim Eng noted that SembMarine now trades below its global financial crisis trough of 1.3 times its book value. The research house has cut its 12-month price target from $1.75 to $1.53, while maintaining a "sell" call on the stock.