SINGAPORE (Mar 28): Sembcorp Marine's TechnipFMC contract is the first major job for the rigbuilder this year.
And DBS expects the order flow to be stronger than expected given the robust pipeline.
"The first major contract win this year contributes approximately 15% of our full-year expectation of $3 billion," says analyst Ho Pei Hwa in a Wednesday report.
SembMarine this morning announced it has secured the EPC contract for the hull and living quarters for a new build FPSO from Energean’s EPCIC contractor – TechnipFMC.
The contract value is not disclosed but Ho expects it to be slightly higher than its previous expectation of $400 million and closer to $500 million as the project also includes the fabrication and integration of various topside modules, as well as the installation of owner-furnished equipment.
"We believe strong order-flow will drive SembMarine closer to our current target price and further rerating will be driven by earnings recovery. Stock could rerate to 3x book or $3.90 with $5 billion revenue and 8% EBIT margin," says Ho.
DBS is maintaining its "buy" and target price of $2.90, based on 2.4 times FY18 book value which is 0.5 SD below mean.
The share’s pullback from the recent high of $2.80 has removed the M&A premium ascribed, thus providing a better entry point to position for a sector recovery.
"We favour SembMarine as a key proxy to the recovery in the O&G and O&M sectors, with strong order wins as key re-rating catalyst," says Ho.
As at 2.55pm, shares in SembMarine are trading at $2.18 or 90.8 times FY18 forecast earnings. Year to date, the stock is up 16.6%.
