SINGAPORE (Feb 13): DBS is reiterating its “buy” call on Sembcorp Marine (SMM) with a target price of $3.10.
SMM has previously secured the contract to build the hull and living quarters for the floating production, storage and offloading (FPSO) at Statoil’s Johan Castberg development in the Barents Sea in Dec.
See: SembMarine wins $661 mil Statoil contract to build FPSO hull and living quarters
Following that it has also placed a bid to provide the topside of floating production, storage and offloading (FPSO) vessel for Castberg.
According to oil and gas media network, Upstream, Statoil may announce its choice of contractor as early as this week.
No outright winner has emerged so far for the work, but Norwegian Kvaerner appears to have an upper hand for the job of carrying out topside construction and integration management for the FPSO.
In a Tuesday report, analyst Ho Pei Hwa says that SMM could also have a role to play in the project as industry experts have estimated the topside construction and integration jobs could be worth more than US$1 billion ($1.33 billion), which could be split into two separate awards.
Moreover, the recent Keppel Corp scandal involving bribery charges has brought SMM into focus, as SMM has been named among the foreign companies that did business with people who are under investigation.
See: Keppel bribery fine puts spotlight on peer Sembcorp, shares slide
However, SMM has denied all wrongdoings.
See: Sneak peek: SembMarine comes under the pressure after Keppel's US$422 mil settlement
This has caused the group’s shares to plunge 12% in the last 20 minutes of trading hours on Feb 12.
Responding to an SGX query, SMM says that it is not aware of any information of possible explanation for the unusual trading activities.
“The likelihood of corruption scandal hit seems low at this point. The other suspicions like rights issue to augment balance sheet or weak 4Q17 results (due on 21st Feb) are less likely to trigger such a selloff, in our view,” says Ho.
During the recent stock market correction, DBS highlighted that SMM’s stock prices were held up by “privatisation” spin.
“So, if the latest market talk is that the privatisation deal may be off the table, then the M&A premium, which we estimate to be 40-50 cents (when stock hit $2.80) could be given back,” says Ho.
According to the analyst, SMM is one of the best proxies to ride the O&M recovery with its strong order win pipeline.
As at 11.23am, shares in SMM are trading 16 cents or 6.75% higher at $2.53.
The stock is also trading at 41.7 times FY18 earnings with a dividend yield of 0.8%.
