1. business and industrial
2. company
3. joint venture

Company Update, 3 November 2014
Sembcorp Marine (SMM SP)
Buy (Maintained)
Energy & Petrochemicals - Oil & Gas Services
Market Cap: USD5,891m
Target Price:
Price:
SGD4.50
SGD3.62
Macro
Risks
High-Spec Shallow-Water Rigs Still In Demand
Growth
Value
Sembcorp Marine (SMM SP)
Relative to Straits Times Index (RHS)
100
4.20
95
4.00
90
3.80
85
3.60
80
3.40
16
14
12
10
8
6
4
2
75
May-14
Jan-14
0
0
.2
0
0
Sembcorp Marine (SembMarine) secured a contract worth USD240m to .
0
build a Pacific Class 400 jack-up rig for Bank of Tokyo-Mitsubishi UFJ, 0
with Japan Drilling Co (JDC) as the lessor and operator of the asset. Its 0
YTD order wins are SGD4.2bn, on track to meet our target of SGD4.5bn.
Valuations of 11-13x FY14-16F P/E on trough earnings appear attractive.
Maintain BUY with SGD4.50TP based on SOP (a 24.3% upside).


Sep-14
4.40
Jul-14
105
Mar-14
4.60
Nov-13
Vol m
Price Close

Source: Bloomberg
Avg Turnover (SGD/USD)
13.0m/10.3m
Cons. Upside (%)
33.7
Upside (%)
24.3
52-wk Price low/high (SGD)
3.58 - 4.50
Free float (%)
39
Share outstanding (m)
2,089
Shareholders (%)
Sembcorp Industries
60.6
Share Performance (%)
YTD
1m
3m
6m
12m
Absolute
(18.7)
(3.2)
(12.6)
(11.1)
(20.8)
Relative
(20.8)
(1.9)
(9.0)
(10.2)
(20.9)

Good order momentum. SembMarine secured a USD240m contract to
build a Pacific Class 400 (PC400) jack-up rig, provisionally named
Hakuryu 14, for BOT Lease Co., Ltd. (BOTL), a leasing company of
Bank of Tokyo-Mitsubishi UFJ (8306 JP, NR). The rig is scheduled for
delivery by Oct 2016 and will be leased and operated by JDC (1606 JP,
NR).
High-specification jack-up rigs still in demand. Since the launch of
the PC400 in 2010, 18 units have been ordered with nine units delivered
and operating in various countries. This contract marks the second
PC400 jack-up rig that SembMarine is building for BOTL. The first unit,
Hakuryu 12, is nearing completion, with delivery scheduled in Jan 2015.
These rigs are capable of operating in 400 feet of water and drilling highpressure, high-temperature wells to depths of 35,000 feet and come with
accommodations for 150 persons.
Stronger contract wins YTD vs Keppel. SembMarine’s YTD order wins
stand at SGD4.2bn, well on track to meet our SGD4.5bn target. We note
that it has actually outpaced key rival Keppel (KEP SP, BUY, TP:
SGD12.60), who has SGD4.0bn of order wins so far, whereas its share
price has underperformed Keppel’s on a relative basis.
Time for (re-)entry. SembMarine has fallen 21% in the last 12 months
due to potential delays over the delivery of its drillship to Brazil and
recently on oil prices. Its shares are now trading at 6-8x EV/EBITDA and
11-13x P/E for FY14-16F, on what are basically trough earnings.
Forecast dividend yields are now topping 4%. We believe most of the
fears have been priced in and current valuations present an attractive
entry point. Our SOP-valuation pegs shipyard earnings at a mid-cycle
16x for a SGD4.50TP, implying a 24.3% upside.
Forecasts and Valuations
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
4,430
5,526
6,148
6,801
6,766
Reported net profit (SGDm)
538
556
574
631
671
Recurring net profit (SGDm)
541
553
574
631
671
(28.3)
2.3
3.7
9.9
6.4
Recurring EPS (SGD)
0.26
0.27
0.27
0.30
0.32
Total turnover (SGDm)
Recurring net profit growth (%)
Shariah compliant


2

.
1
0
.
2




DPS (SGD)
0.13
0.13
0.14
0.15
0.16
Lee Yue Jer, CFA +65 6232 3898
Recurring P/E (x)
14.0
13.7
13.2
12.0
11.3
[email protected]
P/B (x)
3.10
2.82
2.54
2.29
2.07
P/CF (x)
36.2
8.1
17.0
9.0
9.1
3.6
3.6
3.9
4.1
4.4
7.48
7.14
7.65
6.74
6.00
22.2
21.7
20.3
20.1
19.3
Dividend Yield (%)
EV/EBITDA (x)
Return on average equity (%)
Net debt to equity (%)
Our vs consensus EPS (adjusted) (%)
net cash net cash net cash net cash net cash
(6.4)
(5.1)
0.9
Source: Company data, OSK-DMG
See important disclosures at the end of this report
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1
Sembcorp Marine
(SMM SP)
3 November 2014
Financial Exhibits
Profit & Loss (SGDm)
Dec-12
Dec-13
Dec-14F
Dec-15F
Total turnover
4,430
5,526
6,148
6,801
6,766
Cost of sales
(3,736)
(4,818)
(5,365)
(5,927)
(5,846)
Gross profit
Gen & admin expenses
Other operating costs
Dec-16F
695
708
784
874
920
(149)
(148)
(165)
(183)
(182)
9
85
55
55
55
Operating profit
554
644
674
746
793
Operating EBITDA
648
745
787
906
959
Depreciation of fixed assets
(94)
(101)
(113)
(160)
(166)
Operating EBIT
554
644
674
746
793
Net income from investments
56
16
20
20
20
Interest income
25
10
14
8
10
Interest expense
(3)
(8)
(11)
(10)
Exceptional income - net
(2)
3
-
-
(9)
-
Pre-tax profit
630
665
696
765
813
Taxation
(62)
(77)
(104)
(115)
(122)
Minority interests
(29)
(33)
(17)
(19)
(20)
Profit after tax & minorities
538
556
574
631
671
Reported net profit
538
556
574
631
671
Recurring net profit
541
553
574
631
671
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
554
644
674
746
793
94
101
113
160
166
(424)
369
(241)
48
50
(123)
Source: Company data, OSK-DMG
Cash flow (SGDm)
Operating profit
Depreciation & amortisation
Change in working capital
Other operating cash flow
Operating cash flow
(0)
-
(3)
-
275
991
546
955
956
Interest received
25
11
14
8
10
Interest paid
(2)
(11)
(11)
(10)
1
1
-
-
Dividends received
(9)
-
Tax paid
(90)
(54)
(104)
(115)
(122)
Cash flow from operations
208
938
444
838
834
(517)
(815)
(750)
(500)
(60)
(12)
(2)
-
-
-
1
18
-
-
-
Capex
Other new investments
Other investing cash flow
Cash flow from investing activities
(528)
(799)
(750)
(500)
(60)
Dividends paid
(522)
(272)
(272)
(313)
(313)
Proceeds from issue of shares
Increase in debt
Other financing cash flow
Cash flow from financing activities
Cash at beginning of period
Total cash generated
Forex effects
Implied cash at end of period
2
1
-
300
438
-
(12)
(32)
(232)
135
1,990
1,409
(551)
275
(30)
11
1,409
1,695
(272)
1,695
(578)
1,117
(200)
(513)
1,117
(175)
942
(199)
(512)
942
262
1,204
Source: Company data, OSK-DMG
See important disclosures at the end of this report
2
Sembcorp Marine
(SMM SP)
3 November 2014
Financial Exhibits
Balance Sheet (SGDm)
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
Total cash and equivalents
1,409
1,695
1,117
942
1,204
Inventories
1,731
2,084
2,106
2,329
2,317
Accounts receivable
468
442
640
708
704
Other current assets
32
0
-
-
-
3,641
4,221
3,863
3,979
4,226
Total current assets
Total investments
633
597
617
637
657
1,476
2,394
3,031
3,371
3,265
Intangible assets
34
30
30
30
30
Total other assets
2
7
7
7
7
Total non-current assets
2,146
3,029
3,686
4,045
3,960
Total assets
5,786
7,250
7,548
8,025
8,185
33
166
166
166
166
1,687
1,781
2,190
2,422
2,410
Tangible fixed assets
Short-term debt
Accounts payable
Other current liabilities
998
1,583
1,153
1,260
1,255
2,718
3,530
3,509
3,849
3,831
Total long-term debt
300
600
600
400
201
Other liabilities
221
310
310
310
310
Total non-current liabilities
521
910
910
710
511
3,239
4,441
4,419
4,559
4,342
Total current liabilities
Total liabilities
Share capital
480
484
484
484
484
Retained earnings reserve
1,958
2,193
2,495
2,812
3,170
Shareholders' equity
2,439
2,677
2,979
3,297
3,654
109
132
150
169
189
-
-
-
-
Minority interests
Other equity
0
Total equity
2,547
2,810
3,129
3,466
3,844
Total liabilities & equity
5,786
7,250
7,548
8,025
8,185
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
11.9
24.7
11.3
10.6
(0.5)
Operating profit growth (%)
(24.8)
16.2
4.5
10.8
6.2
Net profit growth (%)
(28.4)
3.2
3.3
9.9
6.4
EPS growth (%)
(28.6)
3.1
3.2
9.9
6.4
0.8
9.8
11.2
10.7
10.8
Operating margin (%)
12.5
11.7
11.0
11.0
11.7
Net profit margin (%)
12.2
10.1
9.3
9.3
9.9
Return on average assets (%)
9.9
8.5
7.8
8.1
8.3
Return on average equity (%)
22.2
21.7
20.3
20.1
19.3
Source: Company data, OSK-DMG
Key Ratios (SGD)
Revenue growth (%)
Bv per share growth (%)
Net debt to equity (%)
(42.2)
(33.1)
(11.2)
(10.8)
(21.8)
DPS
0.13
0.13
0.14
0.15
0.16
Recurrent cash flow per share
0.10
0.45
0.21
0.40
0.40
Source: Company data, OSK-DMG
See important disclosures at the end of this report
3
Sembcorp Marine
(SMM SP)
3 November 2014
SWOT Analysis
 One of the world’s top offshore rig builders with its
own proprietary designs
 Competition
from overseas
yards in China
and South
Korea in terms
of price and
financing could
eat into its
market share
 Its new yard in Tuas is one of the most modern
shipyard facilities in the world
 Well-positioned
to benefit from
strong demand
for offshore
products by
Petrobras in
Brazil
 More stringent
regulations from
the International
Maritime
Organisation
(IMO) may
create new
business
opportunities
 Tightening foreign labour supply in Singapore
 Its core offshore products are in direct competition
with Chinese and Korean yards
P/E (x) vs EPS growth
P/BV (x) vs ROAE
16
15%
4
35%
14
9%
3
30%
12
3%
3
25%
10
-4%
2
20%
8
-10%
6
-16%
2
15%
1
10%
0%
P/E (x) (lhs)
EPS growth (rhs)
Source: Company data, OSK-DMG
Jan-13
P/B (x) (lhs)
Jan-16
0
Jan-15
-35%
Jan-14
0
Jan-12
5%
Jan-16
1
Jan-15
-29%
Jan-14
2
Jan-13
-23%
Jan-12
4
Return on average equity (rhs)
Source: Company data, OSK-DMG
Company Profile
Sembcorp Marine is a leading marine and offshore engineering group and is renowned for its rig building and offshore conversion.
See important disclosures at the end of this report
4
Sembcorp Marine
(SMM SP)
3 November 2014
Recommendation Chart
Price Close
4.90
4.50
5.00
5.40
5.60
4.65
4.61
4.76
5.70
5.80
6.14
6.00
5.16
5.25
6.25
5.46
5.95
6.40
6.30
5.30
3.73
4.70
3.70
4.42
3.67
3.51
5.40
3.51
5.90
3.31
Recommendations & Target Price
na
6.40
4.40
3.90
3.40
Buy
2.90
Nov-09
Neutral
Feb-11
Sell
Trading Buy
May-12
Take Prof it
Not Rated
Aug-13
Source: OSK-DMG, Bloomberg
Date
Recommendation
2014-10-09
Buy
Target Price Price
4.50
3.68
2014-05-04
Buy
5.00
4.06
2014-02-28
Buy
5.40
4.11
2014-02-25
Buy
5.40
4.04
2013-11-06
Buy
5.40
4.37
2013-09-12
Buy
5.60
4.41
2013-08-02
Neutral
4.65
4.43
2013-05-06
Neutral
4.65
4.25
2013-02-22
Neutral
4.76
4.51
2012-12-07
Neutral
4.76
4.51
Source : OSK-DMG, Bloomberg
See important disclosures at the end of this report
5
RHB Guide to Investment Ratings
DMG & Partners Research Guide to Investment Ratings
Buy: Share price may exceed 10% over the next 12 months
Trading
Buy:
Share
may10%
exceed
over 12
themonths
next 3 months, however longer-term outlook remains uncertain
Buy:
Share
price
mayprice
exceed
over15%
the next
Neutral: Buy:
ShareShare
price price
may fall
within
the 15%
rangeover
of +/the next
12 months
Trading
may
exceed
the10%
nextover
3 months,
however
longer-term outlook remains uncertain
Take Profit:
Target
been attained.
accumulate
lower
Neutral:
Share
priceprice
may has
fall within
the rangeLook
of +/-to10%
over theatnext
12 levels
months
Sell: Share
may
fall has
by more
10% over
next 12 months
Take
Profit:price
Target
price
beenthan
attained.
Look the
to accumulate
at lower levels
Not Rated:
Stockmay
is not
regular
coverage
Sell:
Share price
fallwithin
by more
thanresearch
10% over
the next 12 months
Not Rated: Stock is not within regular research coverage
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