Hot stock: SembMarine continues surge on hopes for contract wins, sale speculation

SHARES of Sembcorp Marine continued to rally on Tuesday, amid renewed optimism over the business as well as speculation over a possible sale of the company.

As at 2.16pm, the stock was at S$2.57, up 18 Singapore cents or 7.5 per cent. Some 24 million shares changed hands.

UBS Investment Research on Tuesday upgraded its rating on oil-and-gas firm Sembcorp Marine to a "buy" rating, and lifted its target price to S$3.06 from S$1.85 previously. The bank said that SembMarine is expected to see a revival of new orders to S$4 billion in 2018, ending a two-year slump.

"A break of dawn," said UBS in its brokerage report.

"We view SembMarine's new Singapore yard as a game changer. The larger physical scale and higher level of automation allows it to chase jobs above US$1 billion, larger than the contracts it typically pursued in the past."

It also pointed out that the order momentum is picking up, while the recent deals to sell nine jack-ups for US$1.3 billion and a semisub for US$500 million improves SembMarine's balance sheet significantly. Net gearing is expected to fall to less than 30 per cent by the end of 2018.

"We expect incoming orders to be on milestone payment terms, easing the burden on working capital," UBS said.

DBS Group Research also broadly pointed to gains in oil prices as a fillip for oil-and-gas counters, selecting SembMarine as a top pick thanks to its robust contract pipeline. It sees 2018 average Brent crude oil price ending closer to the higher range of its US$60-65 per barrel forecast.

"Happy new year for oil," said DBS.

"In addition to the continued capacity cuts by OPEC and friends, improving global demand and falling crude oil inventory levels in the US have contributed to the positive sentiment, as have several one-off supply disruptions and increased geopolitical risks."

OCBC Investment Research said on Monday a potential privatisation or divestment of SembMarine by Sembcorp Industries seems "likely", judging by the recent price action. A 20 per cent premium would translate to a price of about S$2.76 per share, it estimated.

SembMarine said on Tuesday it is "unaware of any information not previously announced" that would explain the active trading in its shares.

"The company has noted various reports in the media and rating upgrades by stock broking firms in the last one week that might have an impact on the share price. The company is not aware of any other possible explanation for the unusual trading activity," it said.