CFA Society Singapore
SINGAPORE (Feb 4): The integration between Korean mega shipbuilders Hyundai Heavy Industries (HHI) and Daewoo Shipbuilding & Marine Engineering (DSME) spells good news for Singapore-listed shipyards.
That’s because with the consolidation, Sembcorp Marine (SMM), Keppel Offshore & Marine (KEP O&M) and Yangzijiang Shipbuilding will get a chance to gain market share in the O&M and shipbuilding space, said CGS-CIMB Securities in a report last week.
More immediately, CGS-CIMB expects SMM to benefit more “given its hunger for establishing a track record in the newbuild floating production storage and offloading (FPSO) arena”.
The most notable FPSO contract at the moment is the US$1.4 billion-1.5 billion ($1.9 billion-$2.0 billion) Rosebank project for Norway’s Equinor which is fiercely contended for by SMM and DSME.
In a Feb 1 research report, CGS-CIMB analyst Lim Siew Khee thinks the project is highly likely to be awarded this year after the completion of Equinor’s acquisition of Chevron’s 40% stake in Rosebank in January.
Following Temasek’s recent $6 billion divestment of Ascendas/Singbridge to CapitaLand, investors are wondering whether consolidation among the yards is necessary. Lim sees benefits in streamlining the yards and conglomerate structures of SCI, SMM and KEP.
“If the rig building industry does not recover in the next three years, we think the consolidation of both SMM and KEP O&M could strengthen Singapore in the large-scale FLNG (KEP) and FPSO (SMM) newbuild segment as well as create an O&M design and engineering powerhouse, competing head-on with the Koreans.
A possible structure is one mega yard (SMM + KEP O&M), one renewables/utility group Sembcorp Industries (SCI) and one urbanisation/infrastructure group (KEP).
SCI could be the long-term winner as a pure renewable energy/utility group focusing on overseas M&A to grow its capacity, commanding higher valuations.
KEP could continue to pursue its urbanisation solutions of property and infrastructure development, backed by asset management capital.
The total book value of SMM and KEP O&M amount to $5.3 billion. The hypothetical shareholding structure of the enlarged yard could be in the form of a JV, with Temasek having a majority control stake.
CGS-CIMB has Keppel, SCI and SembMarine at “add” with target prices of $8.41, $3.49 and $2.46 respectively.
As at 11am, shares in Keppel, SCI and SembMarine are trading at $6.03, $2.57 and $1.59 respectively or 10.08, 9.51 and 51.81 times FY20F earnings respectively.