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Broker's take: OCBC upgrades SembMarine to 'hold'

ANALYSTS at OCBC Investment Research have upgraded SembMarine (SMM) to "hold" despite the drop in its share price following Keppel Corp's agreement for its offshore unit to pay a US$422 million fine relating to corrupt payments made by a former Keppel agent in Brazil.

Factoring in OCBC Research's upgrade was SMM's announcement on Dec 26 that it inked an agreement to sell its West Rigel rig for US$500 million. Compared to the US$568 million price tag that was agreed on with the original owner, Seadrill's North Atlantic Drilling, this is only 12 per cent lower, "illustrating the relative resilience in prices for quality assets built by yards like SMM," said the analysts, notwithstanding a loss of about S$24 million if the sale closes.

They also noted that SMM share prices have been caught in the Keppel fallout given SMM has also clinched contracts worth billions from Brazil over the past decade.

"SMM's share price corrected five per cent from S$1.94 on Dec 22 to S$1.85 on Dec 29 before benefitting from strong oil prices on Jan 2 to close at S$1.87," the research house said in a note on Wednesday.

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While SMM's shares have dipped, Keppel's has been on the rise since its agreement to pay the fine. OCBC cited SMM's pure play status in the offshore and marine sector for the divergence in share price performance and also SMM's smaller asset base compared to Keppel.

"The market may be wondering if SMM will face a similar penalty, and if so, the fine will comprise a larger percentage of SMM's net asset value," said OCBC. "Similar to KEP, should there be any fine, we do not expect any operational impact."

It also noted the upswing in oil prices, which posted their strongest opening to a year since 2014 on Tuesday.

"In all, with less than a five per cent downside to OCBC's fair value (S$1.78), we upgrade our rating on SMM to hold," it said.

SMM shares were trading flat at S$1.87 as at 10.35am on Wednesday.