Sembcorp Marine - A Decent-Sized Order Win To Kick Off The Turnaround Story

Sembcorp Marine announced that it had won a contract for a WTIV scheduled for delivery in early 2025. We estimate that this contract win is worth approximately S$600m and could be as large as S$800m depending on the specifications.

Note that this is Sembcorp Marine (SGX:S51)’s first contract win since its announcement of modification work for a Floating Production Storage and Offloading vessel in Brazil in Jun 21.

And So It Begins – Sembcorp Marine’s First Contract In A While

Sembcorp Marine announced yesterday that it had secured a contract for the construction of a Wind Turbine Installation Vessel (WTIV) based on its in-house design in collaboration with its as-yet-unnamed customer. Delivery of the vessel will be in 2025 with milestone payments. Our channel checks with the industry indicate that the contract value for this WTIV is in the range of S$600m to as much as $800m.

As a point of comparison, Keppel Corporation (SGX:BN4) won a S$600m order for a WTIV in 4Q20.

Note that this is Sembcorp Marine’s first contract win since its announcement of modification work for a Floating Production Storage and Offloading vessel in Brazil in Jun 21.

Recent Comments From Sembcorp Marine's Management Give Us Some Confidence That 2022 Will Be Strong.

During Sembcorp Marine’s annual results briefing at end-Feb 22, management highlighted that 2022 results will be “significantly better” than 2021. See our previous report: Sembcorp Marine 2021 - UOB Kay Hian 2022-02-28: A Turnaround Is In Sight; Reiterate BUY. In addition, the persistent labour issues in 4Q21 have been largely solved and thus the company will be able to handle the new order wins that are expected to be announced over the next 6-12 months.

Note also that Sembcorp Marine 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.

Maintain BUY Call On Sembcorp Marine

Maintain BUY call on Sembcorp Marine with a target price of S$0.11, which is based on a target multiple of 0.88x, pegged to our 2022 estimated book value per share of S$0.13.

Our target P/B multiple is a 20% discount to Sembcorp Marine’s past-five-year average P/B of 1.1x. Note that we had previously applied a 30% discount but we now view a lower discount as more reasonable given the expected turnaround in the company’s fortunes. With its S$1.5b rights issue completed, and Temasek’s mandatory general offer at S$0.08/share having lapsed in early-Nov 21, we believe that much of the corporate-level risk has dissipated.

Source: SGinvestors