Brokers' take: UOBKH and CGS-CIMB maintain 'hold' on Sembmarine, raise TPs

UOB Kay Hian (UOBKH) and CGS-CIMB have maintained "hold" on S51 (Sembmarine) while raising their target prices to 18 Singapore cents from 16 cents previously, and 22.6 cents from 14.1 cents respectively.

As Sembmarine expects net losses to continue for fiscal 2021 due to supply chain shortages because of the ongoing pandemic and a lack of skilled workers, UOBKH analyst Adrian Loh highlighted that these will have near to medium-term negative effects on its business.

On the other hand, CGS-CIMB analyst Lim Siew Khee said that the shipyard company has been operating at "peak capacity" in the first quarter of this year, despite having reduced manpower strength at 16,000 compared to pre-Covid levels of 20,000. Ms Lim added that most projects except for those newly secured in 2021 are about two-thirds completed, hence reducing manning requirements.

CGS-CIMB underscored that Sembmarine's order book for Q1 2021 stood at S$1.89 billion, up from S$1.82 billion in Q4 2020. On this, the research house estimates that given a similar pace of workload in Q1 2021, the recent RWE Sofia Offshore Wind Farm contract clinched in March this year could be worth about S$500 million.

"Since early works for the project were carried out in 2020, (Sembmarine) could start recognising some revenue from the recent win from H2 2021F," the research house added.

Both UOBKH and CGS-CIMB liked Sembmarine's increased efforts in the renewables energy sector. They shared that the company is actively tendering for more than 10 projects in the sector worth between less than S$100 million and about S$1 billion.

Mr Loh added that while Sembmarine might be "unable" to compete with Chinese and South Korean counterparts for liquified natural gas carrier orders, it has attempted to pivot into greener solutions such as carbon capture, resulting in the company's future "turning green". One such project includes Sembmarine's recent memorandum of understanding with Penguin International and Shell to design a hydrogen fuel cell system for a roll-on/roll-off vessel.

Both research firms explained that Sembmarine might make inroads in FPSO (floating production storage and offloading) project segments among others. CGS-CIMB expects contracts for renewables to be dominated by battery operated vessels or wind turbine installations for fixed wind farms in the near term.

Mr Loh shared that two drillships are due for delivery to offshore drilling contractor Transocean by Sembmarine in end-2021. However, he said that Sembmarine has started to evaluate with clients about a "potential slippage" of delivery into Q1 2022 due to manpower constraints.

"However, we do expect overall industry conditions to be incrementally better in 12 months' time and believe a 'hold' rating is warranted," added UOBKH's Mr Loh.

As at 11.32am, shares of Sembmarine were down 2.4 per cent or 0.5 Singapore cent at 20 cents.

Amendment note: The original headline incorrectly mentioned that UOBKH and CGS-CIMB maintained 'buy' on Sembmarine. It is in fact supposed to be maintained 'hold'. The headline has been corrected to reflect the change.