Nonetheless, there are some positive aspects. For one, Sembmarine’s revenue from ship repair is deemed “surprisingly strong”, with $302 million booked, almost back to the pre-pandemic level of $360 million recorded for 2HFY2019.
New growth areas have emerged, such as so-called green solutions repairs – gas scrubbers and ballast water treatment. “Management is confident that the trend is likely to sustain,” writes Lim in a joint report with Izabella Tan.
They project Sembmarine’s ship repair revenue for the current FY2023 to hit $745 million, which would exceed the pre-pandemic FY2019 level of $605 million, thanks to not just the improvement in demand but also from the consolidation of similar orders from Keppel.
For investors, and the new Sembmarine board and management, the key focus would be on how the two entities can be properly merged and synergies extracted. The new entity has a workforce of around 23,000 people, deployed across 14 yards, fulfilling existing orders worth $18 billion from more than 40 projects.
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While the CGS-CIMB analysts have kept their “add” rating on the stock, they’ve cut their target price to 12 cents from 19 cents, to take into account the larger share base of the enlarged entity, which has 68.3 billion shares, from 31.4 billion shares previously.
UOB Kay Hian’s Adrian Loh, on the other hand, has kept his “buy” call and 15.6 cents target price. He acknowledges that there may be some selling of Sembmarine shares newly held by Keppel Corp shareholders.
However, Loh points out that the unaudited pro forma book value of the enlarged group was $8.4 billion (including $3.4 billion in goodwill) as at end of 1HFY2022, or 12.3 cents per share.
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“We believe that in an offshore marine upcycle, stocks like Sembmarine should not trade less than book value, but instead be between 1.2-1.5x P/B, which equates to 14.8 to 18.5 cents per share,” writes Loh.
Nonetheless, Loh expects Sembmarine to start delivering profits in 1HFY2023 if it is to prove that it is able to reliably and profitably construct its projects, and continue its momentum of new-order wins from 2022.
“Our target book-value multiple for Sembmarine of 1.3x reflects our confidence that it will garner such orders, thus leading to positive share price performance.
“In our view, the offshore construction cycle for both conventional oil and gas and renewables has room for growth in the next few years, especially given the lack of spending by the global oil and gas industry, thus constraining energy supply,” says Loh.
Sembmarine shares closed at 12 cents on March 1, down 9.45%, on heavy volume.
