OCBC Investment Research (OIR) has raised its target price for Sembcorp Marine from 12 cents to 18.5 cents, following shareholders’ approval to merge with Keppel Corporation’s BN4 offshore and marine unit.
At an EGM on Feb 16, Sembmarine shareholders voted overwhelmingly for the proposed “combination”.
With the approval, OIR’s revised fair value of 18.5 cents is based on a price-to-book value of 1.5x, which takes into account the stock’s historical valuations.
Under terms of the proposed merger, Keppel will keep a 5% stake in the combined entity and distribute 49% of the enlarged Sembmarine shares to its shareholders.
Keppel shareholders will receive 19.1 Sembmarine shares for each share they own.
OIR believes that the combined entity could result in a “premier global player” in the energy sector capturing both traditional and renewable energy contracts.
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“However, investors are reminded that we are still forecasting a significant loss for FY2022 while the outlook for FY23 still remains unclear as the integration will take time,” says OIR.
Other risk factors include cost inflation, customer concentration and order deferment.
Nonetheless, in the shorter term, the deal approval and possibility of index inclusions, where rebalancing may drive capital flows, are likely to support the stock.
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On the other hand, there may also be downward pressure by Keppel shareholders who choose to sell their Sembmarine shares after receiving the distribution in-specie, says OIR.
Sembmarine shares closed Feb 16 at 14 cents, up 0.74% while Keppel shares closed at $7.13, up 0.71%.
