Sembcorp Marine

Credit Suisse Research on 29 Aug 2012

SEMBCORP Marine has secured a contract worth US$674 million from Petrobras for the fabrication and integration of topside modules on the FPSO P-68 and P-71.

Petrobras has an option for a similar contract to be exercised within 18 months of contract signing.

This is in line with the reported contract structure of having each of three bidders secure two FPSOs (floating production, storage and offloading units) each, with the final two split between the best-performing initial winners.

We note that the contract value of US$674 million is smaller than Keppel's contract of US$950 million, as well as Brazilian yard OSX's contract of US$900 million, for the fabrication and integration of modules for two FPSOs each.

We believe the difference in contract value is due to the different job scope involved.

Sembcorp Marine will only be fabricating and integrating four topside modules per FPSO, while Keppel's contract includes the fabrication and integration of seven topside modules per FPSO.

The FPSOs are scheduled for completion in 60 months (2017), and we expect the contract to contribute to earnings only from 2014.

The fabrication and integration of the topsides will be carried out in Sembcorp Marine's new yard in Brazil, which is scheduled for full completion in 2014.

However, fabrication of the modules is expected to start at its workshop in 2013.

The FPSOs are likely to be the third and sixth of eight replicant FPSOs to start up from 2016 onwards.

The hulls are being constructed by Brazilian company Engevix at the Rio Grande Naval Pole in the state of Rio Grande do Sul.

At 2012 PE of 16.8 times, it is trading above its historical average of 16 times. We maintain our "neutral" rating and target price of S$4.40.
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