Brokers' take: UOBKH raises Sembmarine target on order wins, lower corporate risk

UOB Kay Hian (UOBKH) on Thursday (Apr 14) raised its target price on Sembcorp Marine (Sembmarine) S51 : S51 0%to S$0.13 from S$0.11, while maintaining its "buy" call on the marine and offshore group.

The research team views mainboard-listed Sembmarine as a "turnaround story" with its recent large order win, indicating possible positives when it comes to new order wins, especially when it comes to the renewables sector.

On Mar 23, Sembmarine said it obtained a contract to construct a wind turbine installation vessel. UOBKH conservatively estimates the undisclosed contract value to be around S$650 million.

The higher target price of S$0.13 is pegged to the research team's estimated aggregated book value per share for 2022 and 2023. It also represents a potential upside of 9.2 per cent from the counter's last trading price of S$0.119 as at 3.54 pm on Thursday.

Sembmarine's shares were trading 2.6 per cent or S$0.003 higher at the time. The counter was also the most heavily traded by volume with 686.9 million shares changing hands.

The research team continues to project a slight loss for Sembmarine in 2022, versus Bloomberg consensus estimates, which are projecting much larger losses. That being said, some of these loss forecasts have been scaled back the past 2 months, UOBKH noted.

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"Should the company win more orders, the earnings turnaround story for 2023 could become more compelling over the next 6 months," UOBKH added.

It believes that much of Sembmarine's corporate-level risk has dissipated due to the completion of the group's S$1.5 billion rights issue. Temasek's mandatory general offer of S$0.08 per share had also lapsed in November 2021.

Moreover, Sembmarine's share price has climbed 42 per cent in the year-to-date period, outperforming the Straits Times Index rise of 8 per cent, indicating near to medium-term upside.

UOBKH attributed the rally in share price to the impending disclosure of the Sembmarine and Keppel Offshore & Marine's (Keppel O&M) merger terms by Apr 30; as well as new order wins for oil and gas production assets and renewable industry assets.

The research team holds the view that a merger between Sembmarine and Keppel O&M would create a more competitive and larger-scale offshore construction company that could be "on the cusp of a turnaround in profitability".