Sembcorp Marine is the best proxy to ride the offshore and marine recovery, DBS said, pointing to expectations that orders wins are set to rise.
“We believe SMM is at the tipping point for order wins and earnings recovery. In this cycle, the operating environment is more competitive and the recovery will be more gradual,” DBS said in a note dated Tuesday, after a non-deal roadshow in Hong Kong and Tokyo. “We favour SMM as a key proxy to the recovery in the O&G and O&M sectors, with strong order wins as key re-rating catalyst.”
While DBS said it expected the order pipeline could translate into S$3 billion or more in new orders this year, the bank added that if order wins grow to S$5 billion in 2019, with a strong margin recovery, the stock could re-rate to its mean valuation of three times price-to-book, or S$3.90.
Based on comments at the non-deal roadshow, DBS said one of SembMarine’s key competitive advantages against global rivals was its new state-of-the-art facility at Tuas Boulevard Yard, which enhances its ability to take on large-scale newbuild projects, such as FPSOs and FPUs, that were previously won by rivals.
“Singapore yards offer flexibility, as well as strong innovation and R&D capability to accommodate client requests on rig customisation as opposed to Korean yards’ standardisation strategy with minimal headroom for modification and customisation,” DBS said. “This is a distinctive advantage in the current moderate oil price environment, as oil majors are more inclined towards customised and cost-efficient
solutions. SMM’s labour cost is also more competitive by leveraging on lower-cost skilled foreign labour.”
DBS kept a buy call on the stock with a S$2.90 target price.
The stock ended Wednesday down 1.36 percent at S$2.18.