Brokers' take: Analysts issue 'buy' on SembMarine; DBS cites rig market recovery

A LANDMARK US$1.3 billion deal between Sembcorp Marine (SembMarine) and Norwegian Borr Drilling is likely to drive SembMarine's share price up, analysts from several research houses said.

CIMB and DBS Group Research valued the stock at S$2.51 and S$2.30 respectively. Meanwhile, UOB Kay Hian and OCBC are more conservative with their estimates, citing a target price of S$1.90 and S$1.98 respectively.

As at 11.01am, SembMarine was one of Singapore Exchange's (SGX) top gainers, trading 5.48 per cent higher at S$1.83 a share. With 13.2 million shares changing hands, it was the most active stock among the top gainers.

It eventually closed at S$1.815, up 8 Singapore cents or 4.6 per cent. Some 19.7 million shares changed hands.

In an SGX filing on Monday, SembMarine said that it will be proceeding with the sale of nine Pacific Class 400 rigs to Borr Drilling as conditions of the contract were met.

"While the consideration suggests an average resale price of approximately US$144 million per rig, implying a steep about 30 per cent discount to the original contract value, the "loss of income" is largely offset by deposits collected and provisions made. It also comes with a market-based fee clause that allows SembMarine to share the uplift in rig prices upon delivery," DBS said.

Additionally, analysts from UOB and CIMB agreed that the proceeds from the sale will improve SembMarine's liquidity on its balance sheet and lower net gearing.

Overhang from insufficient provisions will also likely be removed following the sale.

"By letting these rigs go, the fear of further impairment due to undelivered rigs is removed," CIMB said.

DBS Group Research added that this deal hints that the rig market is well-positioned for an industry recovery, and reiterates its "buy" call on SembMarine and Keppel Corp with a target price of S$7.60 for Keppel.