Sembcorp Marine

DBS GROUP RESEARCH, Sept 11

SEMBCORP Marine has acquired Houston-based design and engineering solution provider SSP Offshore's SSP Floater technology and entire portfolio of proprietary SSP solutions and the company has released further details of the capex plan for Integrated Yard @ Tuas.

Semb Marine has signed a sales and purchase agreement with SSP Offshore to acquire its flagship SSP Floater technology, the next-generation circular hull form, and entire portfolio of proprietary SSP solutions including driller, FPSO and offshore logistic hub for US$21 million.

This is a positive move that will sharpen Semb Marine's technological capabilities and competitive advantage in the long term.

Semb Marine revealed plans to spend S$711 million for a highly-automated steel fabrication facility and Phase II development of the Integrated Yard @ Tuas.

Upon completion in Q3 2015, the new steel facility will have a tonnage capacity of more than three times that of the existing hull shop at the group's Tanjong Kling yard, and will eventually be the central kitchen for steel fabrication for all three phases of the new Tuas yard.

Phase II development at the Tuas yard has commenced at the 34.5 hectare site, and is scheduled for completion by the first quarter of 2017. This involves the construction of three dry docks as well as finger pier, quays and wharves which offer a total berthage of about two km, with maximum water depth ranging from nine metres to 18 metres.

These investments are expected to be funded by its recently announced S$600 million bond issue and internally generated funds. Semb Marine's balance sheet remains healthy with S$880 million net cash as of end-June. We expect the company to stay net cash, albeit declining, these two years on the back of high capex and weakening payment terms.

The rig-building sector is dampened by fears of cuts in E&P capex and short-term oversupply of rigs, but we believe Singapore rig-builders are better positioned to ride the market conditions, with efforts to move up the value chain and establish a presence in protected markets. We maintain "buy" with a target price of S$4.82.

BUY