SINGAPORE (Aug 20): After appreciating close to 50% to its peak of $2.81 in early Feb this year, the share price of Sembcorp Marine has dropped by about 40% to the current price of $1.67.
SembMarine’s transformation efforts to move up the value chain has resulted in new business opportunities but they require significant time and effort in project co-development with potential customers before orders are secured.
Such new-build EPC projects have detailed engineering and construction planning phase, which may take as long as six to 12 months before main construction activities and corresponding revenue recognition can take place. This is unlike building several rigs one after another based on the same design.
In a Monday report, OCBC Investment Research is keeping its new order target of $3 billion for this year and next unchanged for now, given the lumpiness and significant size of potential new orders.
In 1H18, new contracts secured in 1H18 totalled $730 million. Potential work orders include Gravifloat LNG export terminal for Poly-GCL at $1 billion and two large CGL (compressed gas liquid) carriers for Seaone Chevron’s Rosebank FPSO (Floating Production Storage and Offloading) off the UK.
Currently, SembMarine is trading at about 1.45 times forward book value, compared to its trough of 0.9 times in early 2016 and peak of 3.2 times in 4Q13 over the past five years.
“As mentioned in our earlier reports, we have been hesitant to use relatively high historical P/B pegs given current and forecast low ROEs,” says analyst Low Pei Han in the latest report.
Despite the low forecast ROEs for now, Low believes that SembMarine’s established track record in the offshore marine space, innovative and proprietary technology, as well as its new mega yard put it in good stead to secure a wider range of work than before.
Investors should also take a longer term view of the stock, while staying vigilant of any news from the Brazil front, adds Low who has a fair value estimate of $1.74 for SembMarine based on 1.75 times FY19F adjusted book.
As at 11.41am, shares in SembMarine are trading at $1.67.
