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SembMarine is now looking cheap but beware of the risks: OCBC

Michelle Zhu
Michelle Zhu • 2 min read
SembMarine is now looking cheap but beware of the risks: OCBC
SINGAPORE (May 30): OCBC Investment Research is maintaining its “hold” call on Sembcorp Marine (SMM) while lowering its fair value estimate to $1.60 from $1.77 previously upon slashing its price-to-book valuation from 1.6 times to 1.45 times.
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SINGAPORE (May 30): OCBC Investment Research is maintaining its “hold” call on Sembcorp Marine (SMM) while lowering its fair value estimate to $1.60 from $1.77 previously upon slashing its price-to-book valuation from 1.6 times to 1.45 times.

OCBC’s move comes post the group’s 13.2% share price correction (versus the STI’s 6.8%) since the release of its 1Q19 earnings announcement.

In a Thursday report, analyst Low Pei Han attributes the recent price action to a soft set of results; the recent market sell-down amid increasing uncertainties which have affected sentiment; as well as a slide in crude oil prices.

On the group’s prospects, she remains cautious on the possibility of higher-than-expected capex requirements which may lead to a need to raise funds; risks relating to Brazil; as well as lower-than-expected new order flows.

Nonetheless, Low believes SMM’s stock is currently trading at undemanding valuations at 1.3 times forward P/B, which is lower than its 1.4 times average over the past three years but still exceeding the -1 s.d. level of 1.18 times.

She also highlights the management’s optimism on the full year’s new order prospects after SMM secured a net order book of $2.6 billion, excluding Sete drillship contracts, as at end-1Q.

Citing a 16 May article published on industry news platform Upstream, Low notes a recovery uptrend in the offshore segment with at least five leading offshore contractors competing for front-end engineering and design (FEED) work linked to Posco Daewoo’s third-phase development of its Shwe gas project off Myanmar.

“Bids for the FEED contest (of which results are likely to be finalized within months), would eventually lead to an engineering, procurement and construction (EPC) contract. The five that are contending for the FEED work are McDermott, SMM, Daewoo Shipbuilding & Marine Engineering, Hyundai Heavy Industries and Samsung Heavy Industries,” says Low.

As at 3.15pm, shares in SMM are trading 2 cents lower at $1.43, which implies a FY19F dividend yield of 0.69%.

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