SINGAPORE (Mar 28): CIMB is hopeful Sembcorp Marine will be able to secure at least $3 billion in orders in 2018 supported by sizeable production and gas projects.

Only this morning, SembMarine announced it had won a contract for shipyard work on Karish FPSO.

<hr/><a href="https://www.theedgesingapore.com/smm-wins-epc-contract-technipfmc" target="_blank">See: SMM wins EPC contract from TechnipFMC</a><hr/>

The FPSO was recently awarded to main contractor Technip-FMC for engineering works valued at US$1.4 billion ($1.8 billion).

In a Tuesday report, analyst Lim Siew Khee estimates SembMarine's project to be worth US$300-500 million.

Meanwhile, other likely projects include the gas export terminal Gravifloat for Chinese GCL-Poly where advanced front-end engineering and design (FEED) work have already been done by SembMarine.

"We believe finalisation of the contract is likely in 2018. Contract size for phase 1 could be US$1 billion," says Lim who adds that the proof of concept of Gravifloat will open the door for more orders, given SembMarine is in talks with more than one potential customer for the design.

Other notable FPSO jobs in the pipeline include the LOI from Shell Vito with potential orders of US$300-400 million and Chevron Rosebank FPSO.

In 2018-19, Lim expects margins of around 7% given the high turnkey project nature of the FPSO projects.

She expects margins for other newbuild FPSO projects to be better than the Libra FPSO, which involved converting a shuttle tanker to a complex FPSO and suffered from cost overruns.

The US$490 million Statoil FPSO project secured at end-2017 also involved less complex work of hull and living quarters which SembMarine is familiar with.

"Upside could come ramping up the learning curve on newbuild FPSO," says Lim.

Management hopes to achieve net gearing of below 1x, depending on the timing of the remaining US$75 million receipt from Borr Drilling, as well as the US$500 million for West Rigel.

Given no SembMarine employee has been implicated in the Petrobras' Operation Car-wash investigations so far, Lim is hopeful the group could be in the running for some upgrade jobs in Brazil, in addition to the potential re-activation of two drill ships for Petrobras.

As for competition from Korean yards which have historically been strong in the construction of large-scale production structures, Lim thinks labour cost advantage and nimbleness in design should help differentiate SembMarine.

"Current valuations of 1.85 times CY18 book value still offer the opportunity to accumulate SembMarine," says Lim.

As at 11.47am, shares in SembMarine are trading 2 cents lower at $2.19 or 75.5 times FY18 earnings.

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