Sembcorp Marine announced contract. Offshore Marine industry looks bright.

Sembcorp Marine has announced a substantial contract worth S$550m. SMOE, SMM’s subsidiary that specialises in topside modules, has secured an estimated S$550m contract from ConocoPhillips to build the Ekofisk accommodation topside to be installed in the North Sea. This sizeable contract reinforces our positive view on SMM and we maintain our price target of S$4.95. Our forecasts still remain conservative as we have not yet factored in a significant amount of rig building and offshore jobs, which we believe will begin to flow in by 2H10. This contract reinforces our optimism for a recovery in the offshore marine sector. Our target price of S$4.95 is pegged to a FY10 PER of 14x. Kim Eng

Singapore Offshore & Marine Sector

Maintain Overweight on O&M sector. We believe both Keppel and Sembmarine share prices could continue to do well in the near term as we expect about S$11bn worth of order wins. Key catalysts for the sector include recovering order momentum and earnings visibility beyond 2011.

Even if we exclude the seven drillships, we believe that Sembmarine and Keppel O&M could still snatch about US$4bn worth of contracts in total from Petrobras.

We believe that it is only a matter of time before oil majors start to spend again. Both Sembmarineand Keppel are seeing heightened genuine enquiries. We upgrade our 2010-11 order wins for Sembmarine from S$3.5bn to S$6.5bn, S$4bn respectively and S$4.5bn, S$4bn for Keppel O&M. We believe that 2009’s order drought will eventually prove to be just a temporary halt in the ongoing O&M cycle.

Sembmarine and the implied Keppel O&M valuations are trading close to their five-year average of 15-16x. We believe that with the accelerated orders, the share prices could potentially trade near to its previous peak of 20-22x (10% upside to our target prices).

Maintain Outperformon SembMarine, target price raised from S$4.54 to S$5.44. CIMB

ML Note:

I continue to like the offshore marine sector in view of firmer oil price on the back of economic recovery globally. While rig contract may not be as robust as before, the above contract demonstrated that the offshore marine business is more than rigs and there are much peripheral support infrastructure that can benefit this sector.

Kepcorp, SembMarine, Ezra are some of the better names that can consider picking up. However, I do note that they have run up recently, so would prefer to wait for a minor correction, to pick them up again.

I also notice that business activities has picked up over the past one month, and was told that container volume has seen a pick-up and this has caused some kind of squeeze of the supply of late. This is likely to result in freight rate increase which will have a positive effect on shipping counter like NOL and the newly listed Golden Ocean (but this one is bulk freight).

God bless!

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ML is a licensed stockbroker with one of Asia Leading Stock Broker firm. To contact him, please email: icewolfmike@gmail.com