Corporate News Flash, 1 July 2013

Sembcorp Marine (SMM SP)

Industrial - Shipbuilding Market Cap: USD7,138m

Neutral (Maintained)
Target Price: Price:
Macro

SGD4.65 SGD4.32

Two New Jackup Orders From Oro Negro

Risks Growth Value

Sembcorp Marine (SMM SP)

Price Close Relative to Singapore Straits Times (RHS)

5.4 5.2 5.0

4.8

106 100 95
89

0 0 . 2 0 0 SMMs PPL Shipyard has secured a USD417m (SGD528m) contract fro m . 0 Oro Negro for two Pacific Class 400 jackup rigs. We see the latest 0 contract lifted its YTD 2013 new orders to SGD3.24bn representing 0 81% of our forecast and net orderbook to SGD15.2bn. We are positive on the new order as SMM is likely to reap better margins from repeat orders. However, we keep our NEUTRAL call on limited upside to our TP. SMMs 16.1x FY13F P/E is reflective of mid-cycle valuations.

2 . 1 0 . 2

4.6
4.4

83
77

4.2
4.0 35

72
66

30
Vol m

25
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15
10

Two jackup rig orders for USD417m (SGD528m). Sembcorp Marine (SMM)s PPL Shipyard secured two jackup rig orders from Mexican driller, Oro Negro, for USD417m, bringing the total jackup rigs ordered by Oro Negro to six units. Oro Negro placed its first order for two units in Nov 2011 at a price of USD434m, and its second order for another two units in March 2013 for USD417m. The latest rigs (fifth and sixth) are scheduled to be delivered in July 2015 and end-3Q2015 respectively. The rigs will be based on the Pacific Class 400 design, capable of operating in 400 feet water depth and drilling up to 30,000 feet. Orders within forecast; net orderbook rose to more than SGD15bn. SMMs YTD 2013 order win of SGD3.24bn accounted for 81% of our fullyear forecast. We estimate the latest contract lifted the groups net orderbook to SGD15.2bn, with deliveries extending to 2019. We made no changes to FY13-14F EPS estimates as the YTD orders secured were within our forecast of SGD4bn. Repeat jackup orders should lead to better margins. The unit price of the rig at USD208.5m is similar to the contract price secured in March 2013. As this contract is a repeat order for SMMs own design, we believe the group should reap stronger margins from these two rigs. Maintain NEUTRAL, SGD4.65 TP. We value SMM based on a sum-ofthe-parts (SOTP) valuation, with its shipyard business at 16x FY13 net operating profit after tax (NOPAT). SMM trades at a 16.1x FY13F P/E, in line with mid-cycle valuations, and we see little upside to our TP of SGD4.65.

5
Jul-12
May-13

Aug-12 Nov-12
Jan-13

Source: Bloomberg

Mar-13

Avg Turnover (SGD/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (SGD) Free float (%) Shareholders (%) Sembcorp Industries

20.2m/16.2m 16.2 7.6 4.11 - 5.18

60.6

Shariah compliant

Forecasts and Valuations Total turnover (SGDm) Reported net profit (SGDm) Recurring net profit (SGDm) Recurring net profit growth (%) Core EPS (SGD) DPS (SGD)

Dec-10 4,555 860 817 15.1 0.39 0.36 8.3 11.0 38.4 3.45 6.6 3.91 net cash

Dec-11 3,960 752 754 (7.7) 0.36 0.25 5.8 11.9 30.0 3.73 27.5 6.37 net cash

Dec-12 4,430 538 541 (28.3) 0.26 0.13 3.0 16.7 22.2 3.70 43.2 9.29 net cash

Dec-13F 5,119 560 560 3.6 0.27 0.15 3.5 16.1 21.7 3.31 12.9 7.96 net cash (7.2)

Dec-14F 5,811 629 629 12.3 0.30 0.15 3.5 14.3 21.8 2.96 10.8 7.09 net cash (13.5)

Jason Saw +65 6232 3871

jason.saw@sg.oskgroup.com

Dividend Yield (%) Core P/E (x) Return on average equity (%) P/B (x) P/CF (x) EV/EBITDA (x) Net debt to equity (%) Our vs consensus EPS (%)

Lee Yue Jer +65 6232 3898

yuejer.lee@sg.oskgroup.com

Source: Company data, OSK-DMG estimates

See important disclosures at the end of this report

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Sembcorp Marine (SMM SP)

1 July 2013

Recommendation Chart
Price Close
6.7 5.7
Recommendations & Target Price

NR

3.73 4.70

5.95 6.40 6.30

6.25 5.46

4.42

3.51

6.00

3.7 2.7
1.7
Buy 0.7 Jul-08 Neutral Sell Trading Buy Take Prof it Not Rated

Oct-09

3.51

4.7

Jan-11

Apr-12

Source: OSK-DMG estimates, Bloomberg

Date 2013-05-06 2013-02-22 2012-12-07 2012-11-06 2012-11-01 2012-10-05 2012-08-15 2012-08-03 2012-05-17 2012-05-09 Recommendation Neutral Neutral Neutral Neutral Buy Buy Buy Buy Buy Buy Target Price Price 4.65 4.76 4.76 4.61 5.70 5.70 5.70 5.70 5.80 5.80 4.25 4.51 4.51 4.41 4.68 4.95 5.13 4.83 4.53 4.78

Source : OSK-DMG estimates, Bloomberg

See important disclosures at the end of this report

4.76

4.65

3.31

3.67

3.70

5.30

5.16 5.25

6.14

5.80

5.70

4.61

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