CGS-CIMB and DBS Group Research kept their ‘hold’ ratings for Sembcorp Marine (SembMarine) unchanged after its 1QFY2021 ended March business update guided a net loss for FY2021.
However, analysts from both brokerages upped their target prices for SembMarine. CGS-CIMB’s Lim Siew Khee raised her target price to 22.6 cents from 14.1 cents previously, based on 0.8 times P/B. Similarly, DBS’ Ho Pei Hwa raised her target price from 14 cents to 20 cents on a higher P/B of 0.7 times from 0.5 times previously.
Lim notes that SembMarine’s order book was up 6% y-o-y at $1.89 billion as of 1QFY2021. She estimates that the recent RWE Sofia Offshore Wind Farm contract for high voltage direct current (HVDC) electrical systems offshore substations to be worth some $500 million. “SembMarine could start recognising some revenue from the recent win from 2HFY2021,” she opines.
She also highlights that SembMarine is actively tendering for more than 10 projects in the renewable energy and gas solutions segment worth between less than $100 million to $1 billion. A similar number of tenders are in progress for the process solutions segment covering FPSOs, FSOs and FPUs.
She positively views SembMarine’s progress towards more renewable projects, such as its recent partnership with Penguin International and Shell to design a hydrogen fuel cell system.
In addition, she notes that SembMarine has been operating at peak capacity despite worker constraints, though she believes that worker shortages will pose a risk for the company in the event of a resurgence in cases among workers and reinstated lockdowns.
Meanwhile, despite believing that the worst is behind for SembMarine, Ho points out that the order book is still low. “[SembMarine’s] order backlog is running very low at circa $1.6 billion, barely enough to cover one year’s revenue,” she points out.
Ho also believes that a merger between SembMarine and Keppel Offshore & Marine (Keppel O&M) would bring about yard restructuring that will strengthen competitiveness. “The possibility of a merger between the two cannot be ruled out, as Keppel continues to pursue M&A opportunities for its O&M business, which could be long-term positive for SembMarine,” she says.
Shares in SembMarine closed 0.2 cents or 1% lower at 19.8 cents on May 5.
