SembMar

OCBC Research
Sembcorp Marine: Ground-breaking at new yard in Brazil

Summary: Sembcorp Marine (SMM) has announced the ground-breaking of Estaleiro Jurong Aracruz to mark the commencement of the yard’s construction works. This new yard is close to the rich oil and gas basin of Espirito Santo, one of Brazil’s giant pre-salt reservoirs. Recall that the freehold site was acquired in 2010; with this ground-breaking event, we think that the award of Petrobras’ rig tender should be finalised soon, probably by 1Q12. Although full completion of the yard is scheduled for end 2014, it will be developed in stages and we think certain offshore work could be done in tandem with yard construction. Preliminary projection of the development costs is estimated to be around US$550m, and will be funded with debt and internal funds generated from operations of existing yards. Meanwhile, SMM also announced yesterday that Sembawang Shipyard has won a US$140m contract from Equinox Offshore Accommodation to convert a ropax vessel to a DP2 accommodation and repair vessel. Maintain BUY with S$5.63 fair value estimate.