SINGAPORE - Investment house CGS-CIMB has raised its target price for Sembcorp Marine (Sembmarine) to 19 cents, from 12 cents previously, citing the company’s growing order book and its potential for a faster-than-expected return to profitability.
The report came a day after Sembmarine announced that, together with the General Electric (GE) group, it had clinched a €6 billion (S$8.7 billion) deal to supply high-voltage direct current electrical transmission systems for three mega offshore wind farm projects in the Netherlands.
Sembmarine shares on Friday jumped on the contract win, closing up 0.4 cent, or 3.5 per cent, at 11.9 cents. A hefty 784.8 million shares changed hands, making the stock the day’s most traded by volume.
In the CGS-CIMB report, analyst Lim Siew Khee estimates that after including a $130 million offshore wind farm substation contract secured on Jan 23, the latest contract would lift Sembmarine’s order book to around $23.1 billion, from around $17.8 billion in February.
“The award sets a new benchmark for the group as one of the biggest projects won in terms of capacity,” the report noted. “We estimate (Sembmarine’s) share to be around 60 per cent of the total contract or $5.3 billion.”
The three wind farms for customer TenneT TSO have a combined capacity of 6 gigawatts. Each contract is for €2 billion, and Sembmarine’s portion of the work comprises the design, building, installation and commissioning of the offshore platforms, which will host the GE converter systems and equipment.
Work will progressively begin from the third quarter of 2024, with offshore completion of the platforms expected from the fourth quarter of 2029 and from 2031.
Sembmarine combined with Keppel Offshore & Marine earlier in 2023. As at February, renewable projects contributed around 8 per cent of the order book for the enlarged entity. The latest consortium order will lift Sembmarine’s renewable energy portfolio to about 30 per cent, CGS-CIMB said.
“A sizeable order book could be the key driver for Sembmarine’s share price, although the group could incur integration costs/losses over the next one year,” the report said.
The downside risks, however, are severe cost overruns and order cancellations impacting earnings.
