Market watchers believe that Keppel Corp is likely to be the beneficiary of the joint venture if it materialises. In terms of price action, Sembcorp Marine’s (SembMarine) share price has rebounded, largely in reaction to higher crude oil and gas prices. Keppel Corp share price performed a lot better and is up 25.15% year-todate compared with SembMarine’s 20% gain.
On June 24 last year, Keppel and SembMarine signed a non-binding memorandum of understanding (MOU) to enter into a 50:50 joint venture (JV). If the potential combination is completed, it is envisaged that the JV will be listed. SembMarine’s shareholders will hold shares in the JV. However, Keppel will receive shares in the JV and a cash consideration of up to $500 million (or a cash component with the economic equivalent effect).
Market watchers have been wondering where the $500 million cash comes from and there has been no real clarity. So far, the word is that the $500 million will be paid by the combined entity, which market watchers read as SembMarine.
The problem in 2021 was the low price of oil. What a difference a year and a war makes. Now, North Sea Brent is above US$100 ($135.78) per barrel, and oil producers are being tasked to pump more oil and gas. Nonetheless, SembMarine announced that it had won a contract for a wind turbine installation vessel (WTIV), scheduled for delivery in early 2025. UOB Kay Hian estimates that this contract is worth approximately $600 million and could be as large as $800 million depending on the specifications This is SembMarine’s first contract win since its announcement of modification work for a floating production storage and offloading (FPSO) vessel in Brazil in June last year.
A WTIV is a dedicated vessel for installing wind turbines and can either be designed as floating vessels in the shape of a ship or that of a jack-up. “We understand that SembMarine’s contract involves [a jack-up] which is important given that SembMarine has extensive experience in constructing jack-up-like designs given its history in the offshore marine industry,” UOB Kay Hian says.
During SembMarine’s annual results briefing at the end of February, its management highlighted that 2022 results will be “significantly better” than 2021. With the pandemic fading — and with it, labour issues — SembMarine should be able to handle new order wins. UOB Kay Hian reckons that a number of these could be announced in the next six to 12 months. “Note that SembMarine had ‘kitchen-sinked’ a high level of provisions in its 2021 results and thus we do not expect 2022 to be materially impacted by impairment losses,” UOB Kay Hian adds.
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Also, SembMarine is technically on a recovery path having moved above the confluence of a resistance and its 200- day moving average at 8.8 cents and the top of a base at 8.7 cents. If prices reach and breach 9.7 cents, SembMarine would have completed a reverse head-and-shoulders formation, providing the impetus for further upside. Before last year’s extremely dilutive rights issue, prices were fluctuating at the 12.8 cents to 13 cents level.
Keppel, on the other hand, has formed a shooting star-like pattern on the candlestick chart which comprises a small black body at the bottom of a large shadow. The top of the shadow is at $6.60. A shooting star usually indicates some sort of a minor top. The bottom of the pattern is at $6.41. At present Keppel is attempting to hold above this level. A break below $6.41 would be negative as there is minimal support between $6.41 and $6.07.
Interestingly, the MOU is non-binding. A definitive agreement will be announced by the end of March, analysts have indicated.
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