Sembcorp Marine - Navigating Rough Seas

Maintain HOLD; decent dividend yield 
We reckon order momentum will likely lag any oil price recovery amid rig supply glut and keen competition. Nevertheless, SMM offers decent dividend yield of 4-5% on the back of 40% dividend payout.

More deferments
Brazilian projects are likely to be pushed back as Petrobras has slashed its 5-year capex by 41% and production target by 30%. Transocean recently deferred delivery of the pair of drillships under construction at SMM's yard by two years. There could be more of such deferments which pose a risk to earnings, but this should be partially mitigated by compensation from customers.

Slow order momentum YTD win of S$1.4bn was driven by the sizeable contract with Heerema Offshore Services to build the world’s largest semi-submersible crane vessel. SMM’s orderbook had dwindled to S$10.9bn by end-Jun 15, from S$11.4bn in Dec-2015.

Technical Analysis
Daily Chart
Our SOTP target price of S$2.55 is based on 11x SMM’s FY15F earnings (excluding Cosco Shipyard Group, CSG), 8x CSG’s FY15F earnings and fair value of its 4.97% stake in Cosco Corp.

Key Risks to Our View:
Key risks are sustained low oil prices which affect rig count and newbuilding activities, execution risks at protected markets especially Brazil and further deferments / cancellations. (Read Report)

Source : DBS Group Research

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