SINGAPORE (Oct 25): UOB KayHian is keeping its ratings for Sembcorp Marine unchanged for now despite reports the yard had won the Shell Vito project.
No formal value was provided in the reports but total contract value is estimated at US$1.25 billion ($1.7 billion).
The latest win should bring SembMarine's pipeline of project secured for 2018 to between $1.2 billion and 1.9 billion, says UOB.
“Positive catalysts outweigh downside risks and we maintain 'buy' with unchanged target price of $1.90,” says lead analyst Foo Zhi Wei in a Monday report.
According to Upstream newspaper, SembMarine has been confirmed as the winner of the Shell Vito production semisubmersible for both the hull and topsides, and integration contracts.
Estimated capex for the project is US$1.25 billion ($1.70 billion), according to Energy Maritime Associates (EMA).
“The fabrication and integration component is US$0.5 billion in our base case and US$1.0 billion in our bull case,” says Foo.
SembMarine had beaten expectations by securing both contracts, as industry sources had widely believed that either the South Korean and Chinese yards would secure the hull and topside project instead.
Shell has confirmed it will make final investment decision (FID) on the Vito project in early 18. Formal award will likely be announced then, despite the fact that it is understood that SembMarine and Shell have already started planning for the project. Vito is currently planned for a 2021 startup, so earliest delivery is likely to be in 2020.
“Combined with SeaOne’s likely award in 2018, our contract win for 2018 is implied at $1.2 billion in the base case and $1.9 billion in the bull case,” adds Foo.
In any case, Foo says the development represents a positive for SembMarine’s share price and sensitivity analysis points to a target price of at least $2.00 based on UOB’s P/B-ROE relationship. This assumes SembMarine does get US$1.0 billion Poly-GCL contract, with supposed FID in Oct 17.
“No change to estimates for now. We keep our estimates unchanged for now, as we await details on the actual size of the contract,” says Foo.
“Our contract win assumptions over 2017-19 are kept unchanged at $1.2 billion, $1.5 billion and $2.5 billion respectively, as we opt for a review closer to end-17, when there will be greater clarity.”
Shares in SembMarine are up 2 cents at $1.86 or about 45 times FY17 earnings.
