CGS-CIMB Research analysts Lim Siew Khee and Izabella Tan have kept a “hold” rating on Sembcorp Marine after the company secured an Engineering, Procurement, and Construction (EPC) contract worth US$150 million ($200 million) on June 14.
See: SembMarine's Brazilian yard awarded $200 mil contract for Brazilian navy
The EPC contract was signed with Emgepron, a state-owned company linked to the Ministry of Defence in Brazil, and it is based on a typical contract payment scheme.
The contract comes after SembMarine secured repair jobs for three US Navy vessels in the 1QFY2022 ended March. “We think that establishing an expertise in defence may give it a competitive edge against its Korean competitors, and may thus command higher margins,” write the analysts, who have also kept their target price unchanged at 9 cents.
Potential ahead
Including this latest contract win, Lim and Tan estimate that the EPC contract has raised SembMarine’s current net orderbook to $1.95 billion from $1.75 billion in 1QFY2022.
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This latest EPC contract win comes fresh off the heels of another contract secured for the construction of a wind turbine installation vessel (WTIV) from Maersk Supply Service in March, which was said to be in the range of $600 million to $715 million in value.
See: SembMarine clinches contract for landmark wind turbine installation vessel project
As these two contracts - the EPC contract by the Brazilian navy and the WTIV contract from Maersk - are thus far the only two contracts secured for 2022, SembMarine’s order wins ytd now stand at between $800 million to $915 million.
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The analysts are upbeat on the group’s prospects on securing more contracts, as they are projecting a total of $2 billion order wins for the FY2022.
Meanwhile, on SembMarine’s potential merger with Keppel O&M, Lim and Tan see potential for the discount to narrow post-merger completion of both companies in 4QFY2022 as Sembcorp Marine can ride on Keppel O&M’s order wins. They also note that Keppel O&M has secured a total of floating production storage offloading (FPSO) integration contracts worth $250 million ytd.
In their view, more order wins for both SembMarine and Keppel O&M and faster-than-expected project deliveries are key catalysts to SembMarine’s share price, while the cancellation of orders are potential downside risks.
As at 11.21am, shares in Sembcorp Marine are trading flat at 12 cents at a FY2022 P/B ratio of 0.99x.
Photo: Sembcorp Marine
