Continue reading this on our app for a better experience

Open in App
Floating Button
Home Capital Broker's Calls

Optimism grows as rigbuilders ride wave of recovery

Stanislaus Jude Chan
Stanislaus Jude Chan • 3 min read
Optimism grows as rigbuilders ride wave of recovery
SINGAPORE (Sept 20): DBS Group Research says a strong uptick in rigs transactions over the past six months is pointing to a rig market recovery.
Font Resizer
Share to Whatsapp
Share to Facebook
Share to LinkedIn
Scroll to top
Follow us on Facebook and join our Telegram channel for the latest updates.

SINGAPORE (Sept 20): DBS Group Research says a strong uptick in rigs transactions over the past six months is pointing to a rig market recovery.

And the brokerage believes it is time to have a relook at the Singapore rigbuilders.

“We continue to like Keppel Corp as a proxy to ride on a property and offshore & marine recovery, while Sembcorp Marine is a pure play to tap into an oil & gas recovery,” says lead analyst Ho Pei Hwa in a Wednesday report.

As such, DBS is reiterating its “buy” calls on Keppel Corp and SembMarine, with target prices at $7.60 and $2.30, respectively.

“The improving rig market could ‘motivate’ rig owners to take delivery of existing orders and facilitate the disposal of cancelled units in the second hand market, removing a key overhang on Singapore rigbuilders,” says Ho.

The analyst estimates that this could free up Keppel and SembMarine’s working capital by between $1.5 billion and $2.5 billion each. Consequently, net gearing could be lowered to 0.3-0.5x, from 0.5-1.0x currently.

See also: Test debug host entity

In addition, Ho notes that the recent breakthrough by both yards into high-value non-crude solutions brightens up the order outlook.

Keppel in August won a contract worth more than US$400 million ($545 million) for the construction of two Liquefied Natural Gas (LNG) fuelled containerships for the US Jones Act market.


See: Keppel unit bags $545 mil contract to build two LNG vessels in US

See also: Maybank downgrades ComfortDelGro in contrarian call over Addison Lee acquisition worries

Meanwhile, SembMarine earlier this week signed a letter of intent (LoI) with US-based gas company SeaOne for the design and construction of at least two large Compressed Gas Liquid (CGL) carriers.


See: SembMarine partners US gas company SeaOne in fuel supply project

At the same time, Ho says Sete Brasil could reactivate its rig orders at Singapore yards in the near future. The Brazilian rig-owner in end-August filed a new restructuring plan that called for the construction of at least four drilling units in an attempt to restart operations.

“We believe Singapore rigbuilders are well-positioned to deliver at least eight rigs (which are in the advance stages of construction) out of their existing 13 rig orders (worth close to $1 billion each),” says Ho. “The resumption of Sete’s projects shall serve as a re-rating for Keppel and SMM that can help boost their currently low revenue line and remove a huge uncertainty.”

As at 12.04pm, shares in Keppel Corp are trading 1 cent lower at $6.37 or 13.1 times FY17 earnings with a dividend yield of 3.1%.

Meanwhile, shares in SembMarine are trading 2 cents lower at $1.65, or 25.5 times FY17 earnings with a dividend yield of 1.4%.

Highlights

Re test Testing QA Spotlight
1000th issue

Re test Testing QA Spotlight

×
The Edge Singapore
Download The Edge Singapore App
Google playApple store play
Keep updated
Follow our social media
© 2024 The Edge Publishing Pte Ltd. All rights reserved.