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Offshore & Marine│Singapore
March 29, 2015
COMPANY NOTE
Sembcorp Marine
SMM SP / SCMN.SI
Market Cap
Avg Daily Turnover
Free Float
US$4,533m
US$8.03m
37.2%
S$6,203m
S$10.84m
2,088 m shares
Current
S$2.97
Target
S$2.82
Prev. Target
S$3.39
Up/Downside
-5.2%
Conviction|
|
Reality bites
Notes from the Field
The current share price could have priced in zero orders for 2015 but
the downside risk is high on any negative triggers such as delays in
delivery, order cancellations, margin disappointment or continuous
weakening in oil prices. We downgrade SMM from Add to Reduce.
————————————————————————————————————————
LIM Siew Khee
T (65) 6210 8664
E [email protected]
Company Visit
Channel Check
Expert Opinion
Customer Views
————————————————————————————————————————
Show Style "View Doc Map"
With zero orders clinched YTD, we
cut our order target by 50% to
S$1.2bn, using the GFC level as a
benchmark. Our EPS is cut by 6-21%
for FY15-17 from lower orders. We
cut our target price, still based on 11x
CY16 P/E (-1 s.d. of its 13-year
trading average). Earnings upside
could
come
from
stronger-than-expected order wins
or margin improvement from lower
cost of steel/equipment
The beginning of an order
drought
We are entering into the fourth
month of zero orders, similar to the
GFC. SMM clinched S$1.2bn of
orders in 2009, comprising an FPSO
conversion from Modec, platform
construction for Premier Oil and
half-complete semi-subs built by a
Russian
yard
for
Seadragon.
Stripping out the semi-subs, SMM
only won c. S$400m of contracts.
There are still order enquiries for
platform constructions (SMOE is one
of the three contenders for a
US$1.5bn
Chevron
Ubon
gas
development off Thailand), but
competition is fierce and margins
could be sacrificed if it is awarded.
We tone down our order expectation
Price Close
103.2
3.70
89.1
3.20
75.1
2.70
15
61.0
Vol m
10
5
Jul-14
Oct-14
Jan-15
Source: Bloomberg
52-week share price range
2.97
4.14
2.87
2.82
Current
Target
Deferral of deliveries
Other than the Sete Brasil drillship
which is likely to be deferred due to
outstanding payments, other projects
due for delivery in 2015 could face a
similar fate. This includes a semi-sub,
West Rigel for Seadrill’s North
Atlantic Drilling (NAD), several
jack-up rigs for Oro Negro, Marco
Polo Marine and Perisai Petroleum.
These contracts are on 20/80
payment terms, with risks of charter
cancellation or no firm charter. We
believe that negotiations to defer
deliveries are more likely than
contract terminations given the hefty
down payment. These rigs were also
secured at c.11% above GFC prices,
making them harder to dispose.
Risky valuations
At 11x CY16 P/E, SMM is trading
above its GFC average of 6.8x, which
we believe could be reasonable,
without the dread of a global credit
crunch. However, downside risk
might be easy to trigger and not too
far-fetched to imagine. Its P/BV of
1.9x is also an indication of a
weakening ROE trend
Financial Summary
Relative to FSSTI (RHS)
4.20
Mar-14
for 2015 to S$1.2bn and S$2bn in
2016 (previously S$2bn and S$3bn,
respectively).
Revenue (S$m)
Operating EBITDA (S$m)
Net Profit (S$m)
Core EPS (S$)
Core EPS Growth
FD Core P/E (x)
DPS (S$)
Dividend Yield
EV/EBITDA (x)
P/FCFE (x)
Net Gearing
P/BV (x)
ROE
% Change In Core EPS Estimates
CIMB/consensus EPS (x)
Dec-13A
5,526
741.7
556.0
0.27
2.6%
11.16
0.13
4.39%
6.69
7.24
(33.1%)
2.32
21.7%
Dec-14A
5,833
817.9
560.1
0.27
0.8%
11.08
0.13
4.37%
8.02
NA
21.2%
2.09
19.9%
Dec-15F
5,623
802.7
543.7
0.26
(2.9%)
11.41
0.12
4.21%
7.10
5.39
(6.6%)
1.91
17.5%
(6.2%)
0.98
Dec-16F
5,600
788.2
534.5
0.26
(1.7%)
11.61
0.12
4.14%
7.02
9.71
(10.9%)
1.76
15.8%
(13.1%)
0.97
Dec-17F
4,070
659.9
434.2
0.21
(18.8%)
14.29
0.10
3.36%
7.98
10.68
(17.0%)
1.65
11.9%
(20.8%)
0.94
SOURCE: CIMB, COMPANY REPORTS
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Designed by Eight, Powered by EFA
Sembcorp Marine│Singapore
March 29, 2015
PEER COMPARISON
Research Coverage
Bloomberg Code
KEP SP
SCI SP
SMM SP
Keppel Corporation
Sembcorp Industries
Sembcorp Marine
Market
SG
SG
SG
Recommendation
ADD
HOLD
REDUCE
Rolling P/BV (x)
Mkt Cap US$m
11,849
5,592
4,533
Price
8.95
4.29
2.97
Target Price
9.31
4.57
2.82
Upside
4.1%
6.6%
-5.2%
12-month Forward Rolling FD P/E (x)
5.00
25.0
4.50
4.00
20.0
3.50
3.00
15.0
2.50
2.00
10.0
1.50
1.00
5.0
0.50
0.00
Jan-11
Jan-12
Jan-13
Keppel Corporation
Jan-14
Sembcorp Industries
0.0
Jan-11
Jan-15
Sembcorp Marine
Jan-12
Jan-13
Keppel Corporation
Peer Aggregate: P/BV vs ROE
Jan-14
Jan-15
Sembcorp Industries
Sembcorp Marine
Peer Aggregate: 12-mth Fwd FD P/E vs FD EPS Growth
4.00
25.0%
16.0
30.0%
3.50
21.9%
14.0
23.8%
3.00
18.8%
12.0
17.5%
2.50
15.6%
10.0
11.3%
2.00
12.5%
8.0
5.0%
1.50
9.4%
6.0
-1.3%
1.00
6.3%
4.0
-7.5%
0.50
3.1%
2.0
-13.8%
0.00
Jan-11
0.0%
0.0
Jan-11
Jan-12
Jan-13
Rolling P/BV (x) (lhs)
Jan-14
Jan-15
Jan-16
ROE (See Footnote) (rhs)
-20.0%
Jan-12
Jan-13
Jan-14
12-mth Fwd FD P/E (x) (See Footnote) (lhs)
Jan-15
Jan-16
FD EPS Growth (See Footnote) (rhs)
Valuation
Keppel Corporation
Sembcorp Industries
Sembcorp Marine
FD P/E (x) (See Footnote)
Dec-14
Dec-15
Dec-16
8.54
10.36
10.17
9.57
9.41
8.91
11.08
11.41
11.61
Dec-14
1.55
1.36
2.09
P/BV (x)
Dec-15
1.43
1.25
1.91
Dec-16
1.33
1.14
1.76
Dec-14
8.37
7.20
8.02
EV/EBITDA (x)
Dec-15
10.98
4.75
7.10
Dec-16
8.84
4.00
7.02
Dec-16
13.6%
13.5%
15.8%
Dividend Yield
Dec-14
Dec-15
5.41%
4.34%
3.75%
3.82%
4.37%
4.21%
Dec-16
4.43%
4.04%
4.14%
Growth and Returns
Keppel Corporation
Sembcorp Industries
Sembcorp Marine
FD EPS Growth (See Footnote)
Dec-14
Dec-15
Dec-16
1.9%
-17.6%
1.9%
-3.0%
1.7%
5.6%
0.7%
-2.9%
-1.7%
ROE (See Footnote)
Dec-14
Dec-15
18.8%
14.4%
14.8%
14.0%
19.9%
17.5%
SOURCE: CIMB, COMPANY REPORTS
Calculations are performed using EFA™ Monthly Interpolated Annualisation and Aggregation algorithms to December year ends.
NPAT/EPS values for calculations and valuations are based on recurring and normalised values for GAAP and IFRS accounting standard companies respectively.
2
Sembcorp Marine│Singapore
March 29, 2015
BY THE NUMBERS
Share price info
Share px perf. (%)
1M
3M
12M
Relative
-2.1
-11.5
-35.4
Absolute
-0.7
-8.6
-26.3
Major shareholders
% held
SembCorp Industries
61.0
P/BV vs ROE
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
Rolling P/BV (x) (lhs)
40.0%
36.0%
32.0%
28.0%
24.0%
20.0%
16.0%
12.0%
8.0%
4.0%
0.0%
12-mth Fwd FD Core P/E vs FD Core EPS
Growth
25.0
30.0%
20.0
16.0%
15.0
2.0%
10.0
-12.0%
5.0
-26.0%
0.0
Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
-40.0%
12-mth Fwd Rolling FD Core P/E (x) (lhs)
ROE (See Footnote) (rhs)
FD Core EPS Growth (rhs)
Profit & Loss
Earnings could shrink by 16% in FY17
due to weak order momentum in
2015-16.
(S$m)
Total Net Revenues
Gross Profit
Operating EBITDA
Depreciation And Amortisation
Operating EBIT
Financial Income/(Expense)
Pretax Income/(Loss) from Assoc.
Non-Operating Income/(Expense)
Profit Before Tax (pre-EI)
Exceptional Items
Pre-tax Profit
Taxation
Exceptional Income - post-tax
Profit After Tax
Minority Interests
Preferred Dividends
FX Gain/(Loss) - post tax
Other Adjustments - post-tax
Net Profit
Recurring Net Profit
Fully Diluted Recurring Net Profit
Dec-13A
5,526
805
742
(97)
644
2
16
3
665
0
665
(77)
Dec-14A
5,833
844
818
(111)
707
(10)
10
0
707
0
707
(106)
Dec-15F
5,623
779
803
(117)
686
(8)
15
0
693
0
693
(111)
Dec-16F
5,600
765
788
(115)
673
(10)
18
0
681
0
681
(109)
Dec-17F
4,070
633
660
(114)
546
(16)
23
0
553
0
553
(88)
589
(33)
0
601
(41)
0
582
(38)
0
572
(37)
0
465
(30)
0
556
556
556
560
560
560
544
544
544
534
534
534
434
434
434
Cash Flow
Working capital could be strained with
more deferral of deliveries and final
payment of rigs.
(S$m)
EBITDA
Cash Flow from Invt. & Assoc.
Change In Working Capital
(Incr)/Decr in Total Provisions
Other Non-Cash (Income)/Expense
Other Operating Cashflow
Net Interest (Paid)/Received
Tax Paid
Cashflow From Operations
Capex
Disposals Of FAs/subsidiaries
Acq. Of Subsidiaries/investments
Other Investing Cashflow
Cash Flow From Investing
Debt Raised/(repaid)
Proceeds From Issue Of Shares
Shares Repurchased
Dividends Paid
Preferred Dividends
Other Financing Cashflow
Cash Flow From Financing
Total Cash Generated
Free Cashflow To Equity
Free Cashflow To Firm
Dec-13A
742
243
3
(0)
(54)
933
(815)
0
0
0
(815)
738
0
0
(272)
467
585
857
129
Dec-14A
818
Dec-15F
803
Dec-16F
788
Dec-17F
660
(1,267)
799
(156)
0
25
(9)
(83)
(516)
(739)
0
(30)
0
(768)
964
1
(12)
(285)
(8)
(111)
1,483
(331)
0
0
0
(331)
0
0
0
(261)
(10)
(109)
513
(74)
0
0
0
(74)
200
0
0
(257)
(16)
(88)
555
(74)
0
0
0
(74)
100
0
0
(208)
668
(616)
(320)
(1,264)
(261)
891
1,152
1,174
(57)
383
639
463
(108)
373
581
508
SOURCE: CIMB RESEARCH, COMPANY
3
Sembcorp Marine│Singapore
March 29, 2015
BY THE NUMBERS
Balance Sheet
(S$m)
Total Cash And Equivalents
Total Debtors
Inventories
Total Other Current Assets
Total Current Assets
Fixed Assets
Total Investments
Intangible Assets
Total Other Non-Current Assets
Total Non-current Assets
Short-term Debt
Current Portion of Long-Term Debt
Total Creditors
Other Current Liabilities
Total Current Liabilities
Total Long-term Debt
Hybrid Debt - Debt Component
Total Other Non-Current Liabilities
Total Non-current Liabilities
Total Provisions
Total Liabilities
Shareholders' Equity
Minority Interests
Total Equity
Dec-13A
1,695
442
2,084
0
4,221
2,394
553
30
52
3,029
166
Dec-14A
1,079
469
3,005
14
4,567
3,009
561
53
49
3,671
434
Dec-15F
1,970
469
2,812
14
5,264
3,223
576
53
49
3,900
434
Dec-16F
2,352
622
2,800
14
5,789
3,182
594
53
49
3,877
434
Dec-17F
2,725
452
2,035
14
5,226
3,142
617
53
49
3,860
434
1,813
1,551
3,530
600
1,888
1,127
3,449
1,308
1,937
1,683
4,054
1,308
1,929
1,677
4,040
1,508
1,419
1,252
3,105
1,608
187
787
123
4,441
2,677
132
2,810
220
1,527
130
5,106
2,965
167
3,132
220
1,527
130
5,712
3,248
205
3,453
220
1,727
130
5,898
3,526
242
3,768
220
1,827
130
5,063
3,752
273
4,024
Dec-13A
24.7%
15.8%
13.4%
0.44
1.28
79.81
11.5%
49.0%
30.08
147.5
134.1
57.5%
19.5%
Dec-14A
5.6%
10.3%
14.0%
(0.32)
1.42
33.73
15.0%
48.5%
28.50
186.2
131.9
43.2%
16.5%
Dec-15F
(3.6%)
(1.9%)
14.3%
0.11
1.56
30.85
16.0%
48.0%
30.41
219.1
139.4
19.1%
13.6%
Dec-16F
(0.4%)
(1.8%)
14.1%
0.20
1.69
28.12
16.0%
48.0%
35.65
212.4
141.6
22.4%
12.3%
Dec-17F
(27.3%)
(16.3%)
16.2%
0.33
1.80
20.62
16.0%
48.0%
48.18
256.8
171.2
17.5%
9.2%
Dec-13A
12,300
5,000.0
4,845
N/A
N/A
N/A
Dec-14A
11,432
4,200.0
5,210
N/A
N/A
N/A
Dec-15F
7,849
1,200.0
4,963
N/A
N/A
N/A
Dec-16F
5,004
2,200.0
4,874
N/A
N/A
N/A
Dec-17F
5,026
4,000.0
3,308
N/A
N/A
N/A
Key Ratios
Declining ROCE due to lower
utilisation of yard space in Brazil and
Singapore.
Revenue Growth
Operating EBITDA Growth
Operating EBITDA Margin
Net Cash Per Share (S$)
BVPS (S$)
Gross Interest Cover
Effective Tax Rate
Net Dividend Payout Ratio
Accounts Receivables Days
Inventory Days
Accounts Payables Days
ROIC (%)
ROCE (%)
Key Drivers
Outstanding Orderbook (S$m)
Order Book Wins (S$m)
Order Book Depletion (S$m)
Average Day Rate Per Ship (US$)
No. Of Ships (unit)
Average Utilisation Rate (%)
SOURCE: CIMB RESEARCH, COMPANY
4
Sembcorp Marine│Singapore
March 29, 2015
Reality bites
SMM is the second worst performing stock in the big-cap O&M sector, after
Cosco Corp. We believe the current valuation of 11x CY16 (-1 s.d. of its 13-year
trading mean) represents the bottom-end valuation of a non-credit crunch
environment. However, any negative news on delivery delays or order
cancellation could spark a further de-rating.
Figure 1: YTD share price performance % (big-cap stocks)
4.98
YZJSGD
2.94
STE
1.97
SATS
1.56
FSSTI
0.34
KEP
(4.04)
SCI
(4.50)
SIE
(10.43)
SMM
(16.07)
COS
(20.00)
(15.00)
(10.00)
(5.00)
0.00
5.00
10.00
SOURCE: BLOOMBERG
Figure 2: News on delays/cancellations vs. valuations in 2008-2010.
today's valuation
1600
2) Terminated semi-sub rig
contract for PetroRig I as final
payment w as not received
Seadrill delayed
delivery &
payment terms
for tw o jack-ups
8
800
600
Semi-sub option
not execise by
Atw ood Oceanics
Order win
Dec-10
Oct-10
Nov-10
Sep-10
Jul-10
Aug-10
-
Jun-10
Dec-09
Oct-09
Nov-09
Sep-09
Jul-09
Aug-09
Jun-09
Apr-09
Mar-09
Jan-09
Feb-09
Dec-08
Oct-08
Nov-08
Sep-08
Jul-08
0
Aug-08
4
2
May-09
200
Apr-10
400
6
Terminated jack-up rig
contract for Petroprod D&P I
as milestone payments have
not been received
Sold Petrorig I to
Diamond Offshore
May-10
1000
10
Mar-10
1200
14
12
Jan-10
1400
16
Exercised its rights to acquire
the 2nd unit of the jack-up rig
(West Elara) for Seadrill for
US$10.8m and refund of 50% of
payments received.
1) Received notice that
Petropod has been placed
under provisional liquidation
1800
Feb-10
2000
Forward P/E
SOURCES: CIMB, COMPANY REPORTS
S
Amidst a weak rig market, SMM could still bank on the hope of a diversification
of orders such as fixed platforms and conversions. However, this segment faces
fierce competition from the Korean shipbuilders. Upstream reported in Feb 15
that SMM is one of the three contenders for the EPCC contract for the central
processing platform at Chevron’s Ubon gas development off Thailand, worth
about US$1.5bn. Korean Samsung Industries and Daewoo Shipbuilding are the
other two bidders after Malaysian MMHE and US McDermott pulled out for
technical and commercial reasons. With Korean players in the picture, we
believe that EBIT margins could be less than 8%, a level which SMM may not
5
Sembcorp Marine│Singapore
March 29, 2015
be willing to stomach. Its typical EBIT margin for SMOE turnkey projects range
from 8% to 10%, we believe.
On the back of a quiet order momentum since Dec 14, we now use the GFC level
as a benchmark. Without the Seadragon contracts to complete two semi-subs
contracts (S$715m) from a Russian shipyard, SMM only clinched c.S$400m of
orders in 2009, mainly due to the credit crunch. We believe our order target of
S$1.2bn for 2015 would have factored in the absence of a global crisis. We now
expect S$2bn of orders in 2016 and S$4bn in 2017.
Figure 3: Excluding the two semi-subs to complete for Seadragon, SMM won
c.S$400m of platform and FPSO contracts in 2009
Date
Announced Name of project
11-May-09
What
Client
Contract
S$
Gajah Baru Field
Construction of platforms
Premier oil
230.0
4-Aug-09
FPSO Kwame Nkrumah MV21
VLCC to FPSO
Modec
160.0
6-Apr-09
Oban
Semi-sub to complete
Seadragon
371.0
2-Jul-09
Oban B
Semi-sub to complete
Seadragon
Total
344.1
1,105.0
SOURCES: CIMB, COMPANY REPORTS
SMM is due to deliver six rigs from Mar 15 to Dec 15, including one semi-sub
for Seadrill’s North Atlantic Drilling (NAD) which is due in 2Q15/3Q15. West
Rigel is due to be chartered to Rosneft on a five-year contract from Dec 15 to
2020. However, the recent termination by Rosneft on NAD’s drillship (West
Navigator, built in 2000) poses a threat to West Rigel’s charter contract. West
Navigator had similar five-year chartering terms, but it was cancelled due to
weak market conditions and a challenging political environment (sanctions
against Russia). We believe that NAD will only take delivery upon a
confirmation of charter.
The other five rigs due in 2015 are jack-ups for Perisai Petroleum, Oro Negro
and Marco Polo Marine, which are on 20/80 terms with no charter contracts.
Funding could be a problem for Oro Negro, considering that its bond issued for
Impetus (delivered in Jan 15) is trading at a 26% discount. No placements or
bonds have been issued for the next three rigs, Vastus, Supremus and Animus
due in 3Q15.
Perisai Petroleum and Marco Polo could be sourcing for buyers to take on their
rigs, but we believe there is still some mismatch in pricing. Buyers could be
pressing down prices to a post-GFC level of about US$195m/rig for similar
drilling capabilities and water depth (400ft).
Beyond 2015 deliveries, Transocean’s two drillships could be the next
candidates. The US operator has recently deferred the delivery for the five
Keppel’s jack-up rigs due for delivery in 2016-17 by six months and the period
between the delivery of each rig has also been extended.
Figure 4: 400ft jack-up rigs pricing trend from 2007-2014
Low
Order year
2007
2008
2009
2010
2011
2012
2013
2014
High
Average
191
250
195
220
260
242
285
240
191
220
195
194
210
217
222
218
US$'m
191
210
195
177
180
208
166
200
SOURCES: CIMB, COMPANY REPORTS
6
Sembcorp Marine│Singapore
March 29, 2015
Figure 5: SMM’s rigs due for delivery in 2015
Rig Manager
Rig Nam e
Rig Type
Status
Oro Negro
Impetus
Jackup
Enroute
Japan Drilling
HAKURYU-12
Jackup
Enroute
Oro Negro
Vastus
Jackup
North Atlantic Drilling
Ltd.
Sete Brasil S.A.
West Rigel
Semisub
Arpoador
Drillship
Hercules Offshore
Jackup
Oro Negro
Perisai Pacific
102
Supremus
Oro Negro
Animus
Jackup
Marco Polo Drilling
Marco Polo
Jackup TBN 1
Jackup
Under
Construction
Under
Construction
Under
Construction
Under
Construction
Under
Construction
Under
Construction
Under
Construction
Jackup
Cost
Delivery
(US$'m ) date
Contract Notes
For Inpex 05/01/2015 to 12/17/2015 at
$206,000.00/day - Rig sharing betw een Inpex
and CGX Energy; For CGX Energy 05/01/2015
to 09/28/2015 at $206,000.00/day [FO] - 2 Well
For Rosneft 09/01/2015 to 08/31/2020 - Term
Contract - Contract can be cancelled if
For Petrobras (NOC) 06/01/2015 to 11/30/2021
at $450,000.00/day - Term Contract;
Paym ent
term s
Com m ents
209
01/2015
20/80
Bond placement of US$175m issued in Nov14; currently trading at 26% discount
221
02/2015
20/80
Project delivered
209
03/2015
20/80
Potential for deferral pending funding
650
03/2015
20/80
Potential for deferral pending charter
662
03/2015
Milestone
208
06/2015
20/80
Milestone payment, potential for deferral
pending settlment of outstanding payment
Potential for deferral pending charter
209
07/2015
20/80
Potential for deferral pending funding
209
09/2015
20/80
Potential for deferral pending funding
214
12/2015
20/80
Potential for deferral pending funding /
charter
SOURCES: CIMB, COMPANY REPORTS
Figure 6: SMM's order book breakdown
Date
aw arded
Type of products
Custom er
Delivery
Pym t
term s
Contract
(US$'m )
(S$'m )
Risk of pym t
O/S order
deferral
Est. %
book
/cancel.
com .
(S$'m )
3-Apr-12
Harsh-environment semi-sub
North Atlantic Drilling
2Q15
568
710
20/80
High
80%
6-Feb-12
Drillships
Sete Brasil
2Q15
793
991
Milestone
High
80%
8-Aug-12
Drillships
Sete Brasil
4,030
5,038
Milestone
High
20%
Com m ents
142 May need to defer til new contract is secured
198 Delivery may be deferred til after bribery
allegation is settled bribery
4,030 Partial cancellation is possible
29-Aug-12 FPSO topside
Petrobras
2Q16,
1Q17,
1Q18,
2016-17
674
836
Milestone
High
15%
710 Delivery may be deferred further
29-Nov-12 Drillships
Sete Brasil
3Q16
806
1,000
Milestone
High
50%
28-Feb-13 Jack-up rig- Pacific Class 400
Perisai Petroleum
2Q15
208
258
20/80
High
80%
18-Mar-13 Jack-up rigs x 2 -Pacific Class 400
Oro Negro
4Q14, 1Q15
417
517
20/80
High
60%
500 Delivery may be deferred til after bribery
allegation is settled bribery
52 May not have $ to pay, SMM could take
ow nership and sell
207 1 delivered
1-Jul-13
Oro Negro
3Q15
417
517
20/80
High
70%
155 May not have $ to pay
26-Feb-14 Jack-up rig- Pacific Class 400
Marco Polo Marine
4Q15
214
270
20/80
High
60%
27-Feb-14 Drillships x 2
Transocean
1Q18
1,080
1,361
5/95
High
20%
21-May-14 Jack-up rig- JU2000E
Hercules Offshore
2Q16
236
296
10/10/80
High
20%
237 May not have $ to pay
31-Dec-13 Jack-up rig- Pacific Class 400
Perisai Petroleum
3Q16
212
266
20/80
Medium
40%
160 Still have time to raise $
13-Mar-12 Semi-sub w ell intervention rig
Helix Energy Solutions
Jan 15
386
482
Milestone
Low
90%
48
5-Oct-12
Semi-sub accomodation rig
Prosafe
2Q15
295
369
Milestone
Low
90%
37
7-Dec-12
Jack-up rigs x 2 -Pacific Class 400
Oro Negro
4Q14, 1Q15
434
543
20/80
Low
90%
7-Feb-13
Offshore platform integrated topside
Det norske oljeselkap
1Q16
726
1,160
Milestone
Low
40%
696
28-May-13 CJ-70 jack-up rig
Noble
1Q16
596
745
Milestone
Low
40%
447
12-Sep-13 Semi-sub w ell intervention rig
Helix Energy Solutions
mid-16
346
436
Milestone
Low
30%
305
21-Jul-14
Saipem
1Q/ 2Q17
480
600
Milestone
Low
5%
570
23-Sep-14 LNG processing modules
Bechtel - w heatstone
2015
190
241
Milestone
Low
30%
169
12-Oct-14
FPSO conversion
OOGTK Libra
3Q16
696
884
Milestone
Low
5%
840
20-Oct-14
Offshore substation platform/ FPSO
conversion
Jack-up rig- Pacific Class 400
Siemens, Modec
3Q15-2016
222
Milestone
Low
5%
211
BOT Lease Co/ Japan
Drilling
Oct 16
20/80
Low
0%
3-Nov-14
Jack-up rigs x 2 -Pacific Class 400
2x FPSO conversion
240
302
Est. outstanding o/book
108 May not have $ to pay
1,089 May be deferred
54 1 delivered
302
11,267
SOURCES: CIMB, COMPANY REPORTS
7
Sembcorp Marine│Singapore
March 29, 2015
There is no reprieve of bad news from Brazil. S&P’s rate cut of Sete Brasil, and a
civil engineering company, Galvao Engenharia, filing for bankruptcy are the
recent additions. No payment has been made to SMM (and KEP) since our last
update in Feb 15, but construction work continues for the four drillships with
various completion stages (16-82% as at Dec 14). With no clarity on the bribery
investigations and funding structure, a realistic worst case from Brazil could be
the cancellation of the last three drillships due in 2019-2020 that have not
struck steel as at Dec 14. Our EPS for FY15-17 would be lowered by 1% to 15% if
this happens.
We expect EBIT margins of 12% to remain in FY15-16, with the execution of
repeated jack-up rig orders. We also forecast some margin expansion by FY17
to 13.4% on the back of potential cost savings from equipment costs over the
next two years if the global rig newbuild scene remains quiet. Based on our
sensitivity analysis, our earnings forecasts could decrease by 8-10% for every
100 basis point decline in EBIT margin for FY15-17.
Figure 7: EBIT margin
FY11: 18.6%
22%
FY13: 11.7%
FY14: 12.1%
20%
20%
20%
FY12: 12.5%
19%
18%
16%
16.1%
16%
14.1%
14%
12.8%
12%
13.7%
13.2%
13.4%
13.2%
12.2% 12.0%
11.4%
10.9% 11.1%
10.6%
10.0%
10.0%
10%
8%
SOURCES: CIMB, COMPANY REPORTS
Figure 8: EBIT margin and EPS sensitivity
2015F
Current EPS (Scts)
26.0
EBIT margin (%)
EPS (Scts)
Impact
9%
19.3
-26%
10%
21.4
-18%
11%
23.5
-10%
12%
26.0
0%
13%
27.7
7%
14%
29.9
15%
2016F
25.6
EPS (Scts)
Impact
19.3
-25%
21.4
-17%
23.5
-8%
25.6
0%
27.7
8%
29.8
16%
2017F
20.8
EPS (Scts)
Impact
14.0
-32%
15.6
-25%
17.1
-18%
18.6
-10%
20.2
-3%
21.7
4%
SOURCES: CIMB, COMPANY REPORTS
Considering that we are not in a global financial crisis, we believe that
bottom-end valuations of 10-11x are reasonable for SMM. Therefore, if we use
this trading band as a gauge, the current valuations have priced in zero orders
for 2015 and S$3bn in 2016 (Figure 10). Figure 11 and Figure 12 are our
valuation sensitivity analysis, factoring in the partial cancellation of orders
from Sete Brasil and deferral of delivery for Transocean drillships.
8
Sembcorp Marine│Singapore
March 29, 2015
Figure 9: 10-11x forward P/E could be the bottom-end valuation for SMM in a
non-global financial crisis environment
Forw ard P/E (x)
27.0
order win (RHS)
Forward P/E (x)
Order w in (S$'m)
15,000
Crude Oil
14,000
25.0
13,000
23.0
12,000
+1SD 19.4
21.0
11,000
19.0
10,000
9,000
17.0
average 15.3
15.0
13.0
7,000
5,562
-1SD 11.1
1,200
4,000
3,000
2,000
-
Jul-16
Jul-15
Jan-16
Jul-14
Jul-13
Jan-14
Jul-12
Jan-13
Jul-11
Jan-12
Jul-10
Jan-11
Jul-09
Jan-10
Jul-08
Jan-09
Jul-07
Jan-08
Jul-06
Jan-07
5,000
1,000
1,105
Jul-05
Jul-03
Jan-04
Jul-02
Jan-03
2,000
2,055
757
600
Jan-02
3,890
3,815
crude at
US$58/bbl
4,176
Jan-15
crude at
US$25/bbl
5.0
6,000
4,175
2,542
Jul-04
7.0
4,365
Jan-05
9.0
Jan-06
11.0
3.0
8,000
11,146
5,998
SOURCES: CIMB, COMPANY REPORTS
2015F
2016F
2017F
25.69
24.81
21.15
EPS (S cts):
Share price
2015F
2016F
2017F
26.04
25.60
20.79
14.09
10.81
12.68
2.41
9.40
9.73
11.41
2.98
11.44
11.64
14.33
2.38
9.16
9.31
11.47
2.15
8.24
8.38
10.32
SOURCES: CIMB, COMPANY REPORTS
2016F
2017F
25.77
23.59
17.67
2.98
11.56
12.63
16.87
2.38
9.25
10.10
13.49
1.91
7.40
8.08
10.79
SOURCES: CIMB, COMPANY REPORTS
P/E
12.01
10.44
2015F
Share price
P/E
11.60
2.68
P/E
2.98
Figure 12: 3 out of 7 Sete Brasil rigs
cancelled
EPS (S cts):
Share price
SOURCES: CIMB, COMPANY REPORTS
VALUATION AND RECOMMENDATION
We downgrade our recommendation from Add to Reduce with a lower target
price of S$2.82, still based on 11x CY16 P/E. Our main premise for the
downgrade came from our earnings cut due to lower order wins. It is trading
above the GFC average of 6.8x, which we believe is reasonable, without the
dread of a credit crunch. However, downside risk may be easy to trigger and not
too far-fetched to imagine. It is trading at 1.9x P/BV, below the GFC low of 2x in
Feb 09, which is an indication of a weakening ROE trend.
Figure 13: SMM's P/BV vs. ROE
7.0x
50%
Current P/BV
Core ROE
45%
6.0x
40%
Current P/BV
EPS (S cts):
Figure 11: Transocean drillships delay by
1 year
5.0x
35%
30%
4.0x
25%
3.0x
20%
Current core ROE
Figure 10: Zero orders in 2015, S$3bn in
2016, S$5bn in 2017
15%
2.0x
10%
1.0x
5%
0.0x
0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
SOURCES: CIMB, COMPANY REPORTS
9
Sembcorp Marine│Singapore
March 29, 2015
Figure 14: Peer Comparison
Recom.
Price
(lcl curr)
Target
Price
(lcl curr)
Market
Cap
(US$ m)
P/BV (x)
CY2015
Recurring
ROE (%)
CY2015
Dividend
Yield (%)
CY2015
Keppel Corporation
KEP SP
Sembcorp Marine
SMM SP
Singapore offshore - big cap weighted average
Add
Reduce
8.95
2.97
9.31
2.82
11,849
4,533
10.4
11.4
10.6
10.2
11.6
10.5
-11.1%
-6.0%
-9.9%
1.43
1.91
1.54
14.5%
17.8%
15.2%
4.3%
4.2%
4.3%
Cosco Corporation
COS SP
Yangzijiang Shipbuilding
YZJSGD SP
Chinese Shipbuilder weighted average
Reduce
Hold
0.52
1.28
0.47
1.30
843
3,584
23.9
7.4
8.7
9.3
8.4
8.5
73.0%
-13.2%
-6.3%
0.85
0.99
0.96
3.6%
14.0%
11.5%
1.9%
4.0%
3.6%
Sembcorp Industries
ST Engineering
SIA Engineering
Industrial conglomerate weighted
Hold
Add
Reduce
4.29
3.52
4.04
4.57
3.93
3.90
5,592
7,995
3,310
9.4
18.8
22.6
14.5
8.9
17.8
21.1
13.7
0.3%
4.0%
-1.8%
1.3%
1.25
4.88
3.45
2.38
14.1%
27.0%
15.4%
17.3%
3.8%
4.2%
4.0%
4.1%
Add
NR
Hold
0.31
0.41
0.51
0.39
na
0.54
475
96
435
6.1
2.9
8.4
7.0
5.8
6.2
2.9
9.0
7.2
6.0
-7.3%
3.6%
-9.4%
-8.1%
-4.3%
1.23
na
0.76
0.96
0.99
22.1%
15.3%
10.0%
14.9%
15.8%
4.7%
na
3.6%
4.2%
4.1%
Ezion Holdings
EZI SP
Ezra Holdings
EZRA SP
Mermaid Maritime
MMT SP
Pacific Radiance
PACRA SP
Pacc Offshore Services Holding
POSH SP
Swiber Holdings
SWIB SP
Swissco Holdings
SWCH SP
Singapore OSV owner (weighted avg - excl NR)
Singapore OSV owner (all simple average)
Add
Add
Hold
Add
NR
Reduce
Add
1.08
0.45
0.23
0.68
0.46
0.17
0.41
1.81
0.83
0.24
1.04
na
0.50
0.90
1,246
330
232
361
595
117
201
5.5
5.6
10.4
6.5
5.6
48.7
3.9
5.9
12.3
3.9
5.1
7.2
4.7
4.3
na
3.4
4.5
4.8
30.1%
28.6%
-11.0%
2.0%
58.6%
na
11.7%
22.5%
20.0%
0.87
0.25
0.39
0.77
0.38
0.15
0.68
0.54
0.50
16.8%
4.6%
3.8%
12.4%
7.8%
0.4%
21.7%
9.7%
9.6%
0.1%
0.0%
5.6%
4.8%
3.1%
0.0%
5.4%
1.7%
2.7%
Alam Maritim Resources Bhd
AMRB MK
Coastal Contracts Bhd
COCO MK
Malaysia Marine & Heavy Eng
MMHE MK
Perdana Petroleum
PETR MK
Perisai Petroleum
PPT MK
SapuraKencana Petroleum
SAKP MK
TH Heavy Engineering
RH MK
UMW Oil & Gas
UMWOG MK
Malaysia offshore (weighted avg - excl NR)
Malaysia offshore (all simple average)
NR
NR
Reduce
Add
Reduce
Add
Reduce
Add
0.65
2.96
1.19
1.28
0.57
2.37
0.35
2.20
na
na
1.20
1.61
0.61
3.14
0.28
3.43
162
425
517
259
183
3,855
104
1,291
9.8
7.6
12.5
10.1
18.6
12.2
18.9
12.3
12.3
12.8
8.6
6.6
14.8
8.4
9.7
11.3
15.2
9.6
11.0
10.5
4.9%
10.8%
-4.9%
6.2%
182.1%
-14.7%
na
32.9%
-2.1%
31.1%
0.72
1.00
0.83
0.84
0.77
1.74
0.82
3.97
1.62
1.34
7.2%
14.3%
6.2%
10.8%
3.6%
10.1%
5.1%
17.9%
10.0%
9.4%
1.5%
2.6%
5.9%
2.3%
0.0%
2.1%
0.0%
0.9%
2.1%
1.9%
Logindo Samudramakmur Tbk PT
LEAD IJ
Wintermar Offshore Marine
WINS IJ
Indonesia offshore (all simple average)
NR
Add
2,580
540.0
na
800.0
125
167
5.7
8.1
6.9
3.9
6.2
5.0
30.4%
9.9%
20.1%
0.82
0.70
0.76
15.9%
9.0%
12.5%
3.1%
0.0%
1.6%
Samsung Heavy Industries
010140 KS
Hyundai Heavy Industries
009540 KS
Daewoo Shipbuilding & Marine
042660 KS
Hyundai Mipo Dockyard
010620 KS
Korean Shipbuilder weighted average
Hold
Add
Add
Add
18,350
123,000
18,300
73,800
19,000
180,000
25,000
140,000
3,840
8,473
3,174
1,338
16.4
19.2
12.6
15.3
16.6
10.8
10.4
7.7
9.9
9.8
61.2%
na
96.9%
na
na
0.70
0.61
0.69
0.67
0.65
4.3%
3.2%
5.6%
4.5%
4.0%
1.4%
0.0%
1.6%
0.0%
0.6%
TK Corp
023160 KQ
Sung Kwang Bend
014620 KQ
Korean offshore equipments weighted average
Add
Add
10,300
13,350
21,000
24,000
247
346
9.5
7.3
8.1
7.4
6.9
7.1
29.4%
9.9%
16.4%
0.56
0.74
0.65
6.0%
10.7%
8.5%
0.1%
1.1%
0.7%
NR
NR
NR
NR
NR
NR
23.33
19.43
16.46
14.33
36.50
54.00
na
na
na
na
na
na
1,094
691
1,293
360
174
255
10.5
15.7
22.1
na
14.4
4.0
13.4
12.9
13.6
18.9
na
na
4.9
12.6
0.4%
0.5%
0.9%
0.4%
0.2%
0.4%
0.5%
0.44
0.49
0.86
0.36
0.22
0.37
0.46
3.0%
2.3%
3.9%
-0.2%
0.2%
8.5%
3.0%
4.3%
0.0%
5.9%
0.0%
8.7%
6.0%
4.1%
12.1
12.4
10.2
9.2
48.1%
17.4%
1.10
1.03
9.3%
9.6%
2.9%
2.7%
Company
Bloomberg
Ticker
SCI SP
STE SP
SIE SP
average
Nam Cheong
NCL SP
Triyards Holdings Ltd
ETL SP
Vard Holdings Ltd
VARD SP
Singapore-listed OSV builder weighted average
Singapore-listed OSV builder (all simple average)
International OSV owner
Tidewater Inc
TDW US
Hornbeck Offshore Services Inc
HOS US
Bourbon SA
GBB FP
Gulfmark Offshore Inc
GLF US
Farstad Shipping ASA
FAR NO
Solstad Offshore ASA
SOFF NO
International OSV owner (all simple average)
Average (All ex NR co)
Average (All simple)
FD Core P/E (x) 2-year EPS
CY2015 CY2016 CAGR (%)
SOURCES: CIMB, COMPANY REPORTS, BLOOMBERG
10
Sembcorp Marine│Singapore
March 29, 2015
#01
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11
Sembcorp Marine│Singapore
March 29, 2015
(a)
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12
Sembcorp Marine│Singapore
March 29, 2015
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AAV, ADVANC, AIT, AMATA, ANAN, AOT, AP, ASP, BANPU, BAY, BBL, BCH, BCP, BEC, BECL, BGH, BH, BIGC, BJC, BJCHI, BLAND, BMCL,
BTS, CENTEL, CK, CPALL, CPF, CPN, DELTA, DEMCO, DTAC, EARTH, EGCO, ERW, GFPT, GLOBAL, GLOW, GUNKUL, HANA, HEMRAJ,
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TRUE.
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Score Range:
Description:
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Excellent
80 - 89
Very Good
70 - 79
Good
13
Below 70 or
N/A
No Survey Result
Sembcorp Marine│Singapore
March 29, 2015
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Distribution of stock ratings and investment banking clients for quarter ended on 31 December 2014
1586 companies under coverage for quarter ended on 31 December 2014
Rating Distribution (%)
Investment Banking clients (%)
Add
58.4%
6.0%
Hold
29.4%
4.3%
Reduce
12.2%
1.0%
Spitzer Chart for stock being researched ( 2 year data )
Sembcorp Marine (SMM SP)
Price Close
3.39
4.00
4.11
4.30
5.10
5.16
5.16
4.80
4.70
4.60
Recommendations & Target Price
5.01
5.10
4.10
3.60
3.10
Add
2.60
Mar-13
Outperform
Jul-13
Hold
Neutral
Dec-13
Reduce
Underperform
Apr-14
14
Trading Buy
Aug-14
Trading sell
Dec-14
Not Rated
Sembcorp Marine│Singapore
March 29, 2015
Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (Thai IOD) in 2014.
AAV – Very Good, ADVANC – Very Good, AEONTS – not available, AMATA - Good, ANAN – Very Good, AOT – Very Good, AP - Good, ASK – Very Good,
ASP – Very Good, BANPU – Very Good , BAY – Very Good , BBL – Very Good, BCH – not available, BCP - Excellent, BEAUTY – Good, BEC - Good, BECL –
Very Good, BGH - not available, BH - Good, BIGC - Very Good, BJC – Good, BLA – Very Good, BMCL - Very Good, BTS - Excellent, CCET – Good,
CENTEL – Very Good, CHG – not available, CK – Very Good, CPALL – not available, CPF – Very Good, CPN - Excellent, DELTA - Very Good, DEMCO – Good,
DTAC – Very Good, EA - Good, ECL – not available, EGCO - Excellent, GFPT - Very Good, GLOBAL - Good, GLOW - Good, GRAMMY - Excellent, HANA Excellent, HEMRAJ – Very Good, HMPRO - Very Good, ICHI - not available, INTUCH - Excellent, ITD – Good, IVL - Excellent, JAS – not available, JUBILE –
not available, KAMART – not available, KBANK - Excellent, KCE - Very Good, KGI – Good, KKP – Excellent, KTB - Excellent, KTC – Good, LH - Very Good,
LPN – Very Good, M - not available, MAJOR - Good, MAKRO – Good, MBKET – Good, MC – Very Good, MCOT – Very Good, MEGA – Good, MINT Excellent, OFM – Very Good, OISHI – Good, PS – Very Good, PSL - Excellent, PTT - Excellent, PTTEP - Excellent, PTTGC - Excellent, QH – Very Good,
RATCH – Very Good, ROBINS – Very Good, RS – Very Good, SAMART - Excellent, SAPPE - not available, SAT – Excellent, SAWAD – not available, SC –
Excellent, SCB - Excellent, SCBLIF – Good, SCC – Very Good, SCCC - Good, SIM - Excellent, SIRI - Good, SPALI - Excellent, STA – Very Good, STEC - Good,
SVI – Very Good, TASCO – Good, TCAP – Very Good, THAI – Very Good, THANI – Very Good, THCOM – Very Good, THRE – not available, THREL – Good,
TICON – Good, TISCO - Excellent, TK – Very Good, TMB - Excellent, TOP - Excellent, TRUE – Very Good, TTW – Very Good, TUF - Good, VGI – Very Good,
WORK – not available.
CIMB Recommendation Framework
Stock Ratings
Definition:
Add
The stock’s total return is expected to exceed 10% over the next 12 months.
Hold
The stock’s total return is expected to be between 0% and positive 10% over the next 12 months.
Reduce
The stock’s total return is expected to fall below 0% or more over the next 12 months.
The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward
net dividend yields of the stock. Stock price targets have an investment horizon of 12 months.
Sector Ratings
Overweight
Neutral
Underweight
Definition:
An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation.
A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation.
An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.
Country Ratings
Overweight
Neutral
Underweight
Definition:
An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark.
A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark.
An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.
*Prior to December 2013 CIMB recommendation framework for stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand,
Jakarta Stock Exchange, Australian Securities Exchange, Taiwan Stock Exchange and National Stock Exchange of India/Bombay Stock Exchange were
based on a stock’s total return relative to the relevant benchmarks total return. Outperform: expected to exceed by 5% or more over the next 12 months.
Neutral: expected to be within +/-5% over the next 12 months. Underperform: expected to be below by 5% or more over the next 12 months. Trading Buy:
expected to exceed by 3% or more over the next 3 months. Trading Sell: expected to be below by 3% or more over the next 3 months. For stocks listed on
Korea Exchange, Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Outperform: Expected positive total returns of 10% or
more over the next 12 months. Neutral: Expected total returns of between -10% and +10% over the next 12 months. Underperform: Expected negative total
returns of 10% or more over the next 12 months. Trading Buy: Expected positive total returns of 10% or more over the next 3 months. Trading Sell: Expected
negative total returns of 10% or more over the next 3 months.
15