SINGAPORE (Oct 9): The sale of nine undelivered jackup rigs by Norwegian Borr Drilling is welcome relief for Sembcorp Marine, says CIMB.
The sale, coupled with improving net gearing and potential completion of Sete Brasil rigs, will be major re-rating catalysts for SembMarine, adds the research house.
“We keep our $1.5 billion order forecast,” says analyst Lim Siew Khee who has an “add” for the rig and shipyard with $2.51 target price.
“Our revised 2x P/BV valuation is based on 20% discount to SembMarine’s 20-year average of 2.5x,” says Lim in a weekend report.
SembMarine has signed agreements for the sale of nine jackup rigs at US$1.3 billion, or US$144 million each rig. SembMarine will take in $15 million loss from the transaction.
The nine rigs comprised six terminated contracts -- one from Marco Polo, two from Perisai and three from Oro Negro -- as well as three speculative builds by SembMarine.
SembMarine still has one undelivered semi-submersible, for North Atlantic and four drillships for Sete Brasil.
By letting these rigs go, the fear of further impairment due to undelivered rigs is removed, says Lim.
It would be even better if SembMarine could sell the semi-sub for at least US$408 million.
The final outcome of the long-drawn restructuring of Sete Brasil would be another re-rating catalyst, in Lim’s view.
With more than 100 rigs unchartered, Lim says yards may not see a surge in rig orders as the global rig market is still in a surplus state.
But she expects SembMarine’s net gearing to improve from 1.3x as at end 2Q17 to 0.7x, using the proceeds to pay down debt.
Year to date, SembMarine has an order win of $270 million. This excludes a potential $600 million contract for compressed gas liquid (CGL) carriers from SeaOne Caribbean.
Year to date, shares in SembMarine are up 32.6% to $1.82.
