SINGAPORE (Mar 28): Sembcorp Marine's wholly-owned subsidiary, Sembcorp Marine Rigs & Floater, secured an Engineering, Procurement and Construction (EPC) contract from UK-based energy company TechnipFMC.

Under the contract, SembMarine will fabricate and integrate various topside modules as well as install owner-furnished equipment to the hull and living quarters for TechnipFMC’s newbuild Floating Production, Storage and Offloading vessel (FPSO).

The FPSO’s hull measures approximately 227m long and 50m wide, with a total oil storage capacity of 800,000 bbls and gas production capacity of 8 billion cubic metres per annum.

Scheduled for completion 4Q20, it will be deployed at the Energean-operated Karish and Tanin deepwater field developments in the Eastern Mediterranean, approximately 90km offshore Israel.

SembMarine does not expect the contract to have an impact on its earnings for the financial year ending Dec 2018.

While the financial value of the contract was not disclosed, UOB Kay Hian estimates SMM's share of the contract to fall within the US$400-500 million ($523-653 million) range based on the technical development plays by Energean and estimates from the Energy Maritime Associates (EMA). 

The research house is maintaining its "hold" call on SembMarine with an unchanged target price of $1.90, which is pegged to 1.6 times FY19 book. 

In a Wednesday flash note, UOB analyst Foo Zhi Wei says that while the group's recent contract win represents a positive in comparison against its peers which have had, to date, limited contract wins or even at such a contract size, he expects overall profitability to remain weak. 

This in turn restrains the counter's PB multiple that can be assigned to it based on UOB's projected return on equity (ROE) for SembMarine, he explains. 

"While SembMarine's share price has traded upwards with the improvement in oil price, we think the higher valuations currently accorded is unjustified considering profitability likely remains weak over the longer term.," says Foo. 

"Taking into account that the industry still remains weak, we expect their EBIT margin to come in at the lower-end of their historically guided range of 8-12%." 

As at 11.10am, shares in SembMarine are trading 3 cents lower at $2.18.