With the completion of the merger with Keppel Corp’s offshore and marine unit, Ho Pei Hwa of DBS Group Research has resumed coverage on Sembcorp Marine with a “buy” call and 14 cents price target, citing how the “tide is turning”.
In her March 28 report, Ho says that the combined entity is a “global champion with world-class yard facilities and offshore engineering capabilities” and is poised to become a “leading clean energy solutions provider” as well.
Citing the combined order book of more than $17 billion, Ho sees losses narrowing this current FY2023 and forming the base for the eventual turnaround in FY2024.
She warns of integration hiccups and costs could pose some downside risks this year, but they should be seen as one-offs.
“Looking beyond, we expect Sembcorp Marine to reap the synergies from the merger, on both the cost and revenue front,” says Ho.
Her target price of 14 cents is based on 1.2x FY23 book value, which is in line with global peers’ median valuation, and an upside of some 40% from current levels.
“We believe 40% of the rerating potential could come from the earnings turnaround and 60% from an uplift in the valuation multiple from 1.0x PB towards 1.2x PB, on the back of the robust momentum in order wins,” adds Ho.
That aside, key risks include the recent news that Brazilian authorities have initiated probes into a multi-year-long case of “irregularities” involving the company’s local unit, as well as an unexpected plunge in oil prices.
Sembcorp Marine, as a 10.02 am, changed hand at 11 cents, up 0.95% for the day.
