SINGAPORE (Sept 3): Earlier in April this year, Taiwan announced that it is planning to increase its offshore wind energy generation capacity by 5GW over a five year period from 2026 for commercial use. This move is part of the country’s third phase of offshore wind energy development project.
Taiwan’s Ministry of Economic Affairs has invited local and foreign wind energy developers to coordinate on aspects such as maintenance, installation, and underwater foundation.
Taiwan’s effort to reach its energy goals is good news for Sembcorp Marine (SembMarine) as the group has managed to break into the highly competitive sector and clinched a contract with Jan De Nul n.v. to fabricate 15 jacket foundations for the Formosa 2 Offshore Wind Farm.
Located 4km offshore Miaoli County in the Taiwan Strait, the 376MW Formosa 2 facility will be Taiwan’s largest offshore wind farm, generating sufficient electricity for over 380,000 households when it starts operation in late 2021.
This contract won is just one of six new projects totalling $400 million that SembMarine snagged recently.
The other contracts won included the conversion of Ariake, a very large crude carrier (VLCC), into a floating production, storage and offloading (FPSO) unit for deployment in the east coast of India; three new gas projects; and the makeover of Asuka II – Japan’s largest cruise ship – for NYK Cruises.
Among the projects, CGS-CIMB Research’s Lim Siew Khee believes the largest, worth about $200 million, is for the FPSO conversion project in India. The project will see Sembcorp Marine Rigs & Floater and joint venture companies of Shapoorji Pallonji Oil and Gas and Bumi Armada working together to convert Ariake into an FPSO vessel that will produce up to 90,000 barrels of oil per day (BOPD) and have a 1.3-million-barrel storage facility.
But it is the Taiwan windfarm contract that has caught Lim’s attention. Even though they may not be of high value, the contract proves SembMarine has a foot in the windfarm segment.
With the new contract wins, the group’s total order wins year to date has hit $575 million, bringing total orderbook to about $2.5 billion.
“Historically, to achieve profitability, the yard requires about $3 billion of revenue run rate and order intake of $2 billion to $3 billion per annum. We think SembMarine still needs to step up in its order win momentum to see a meaningful turnaround in 2020F. We keep our $1 billion order forecast for 2020F, for now,” says Lim in a Sept 2 report.
In its latest 2Q19 results, SembMarine recorded a loss of $8.5 million, 84.6% lower compared to the loss of $55.6 million a year ago. This came on the back of a 55.1% y-o-y drop in turnover to $731 million.
CGS-CIMB is upgrading SembMarine to “hold” from “reduce” with a higher target price of $1.26.
In a Sept 2 report, RHB Research analyst Leng Seng Choon says while the contracts will not have material impact on SembMarine’s FY19 earnings, "they reflect improving order wins, which are a positive for FY20F earnings recovery.”
RHB is keeping SembMarine at “buy” but lowering the target price to $1.63 or 1.48 times FY20 book value on concerns about the US-China trade war.
The research house is also forecasting FY20 contract wins of $2.5 billion.
Shares in SembMarine closed 3 cents higher at $1.21 on Wednesday.
