SEMBCORP MARINE | BUY
TARGET PRICE: $3.10
FEB 13 CLOSE: $2.49
DBS Group Research, Feb 13
Statoil could announce its choice of floating production, storage and offloading vessel contractor for its Johan Castberg development in the Barents Sea as soon as this week.
Sembcorp Marine (SMM) - which secured the contract to build the hull and living quarters in December - has also been involved in the bidding, and the prospect of SMM playing a role should not be ruled out.
SMM stock price plunged by 12 per cent in the last 20 minutes of trading hours on Monday.
SMM responded to a Singapore Exchange query, confirming that the company is not aware of any information or possible explanation for the unusual trading activities.
The likelihood of a corruption scandal hit seems low at this point. The other suspicions, such as a rights issue to augment the balance sheet or weak Q4 2017 results due on Feb 21, are less likely to trigger such a sell-off, in our view.
We highlighted earlier that SMM's stock prices were held up by "privatisation" spin, during the recent stock market correction. So, if the latest market talk is that the privatisation deal may be off the table, then the merger and acquisition premium could be given back.
We hold on to our belief in an oil-and-gas recovery and SMM as one of the best proxies to ride the offshore and marine recovery with a strong order win pipeline. Reiterate our "buy" recommendation and target price of $3.10, which is based on fundamental sector recovery.
SINGAPORE EXCHANGE | HOLD
TARGET PRICE: $7.85
FEB 13 CLOSE: $7.30
CGS-CIMB, Feb 12
Singapore is a popular offshore market for Indian derivatives, namely through its SGX Nifty 50 index futures.
We project a potential earnings gap from next year as its other new initiatives take time to ramp up.
In our scenario analysis, we assume the loss of the entire Nifty contribution at various average clearing fees, which could lead to a potential 2 per cent to 11 per cent decline in earnings for next year and 2020.
We note that there are possible areas for cost savings from the decrease in trading volumes, while the absence of royalty fees from Nifty products will result in lower royalty costs to the National Stock Exchange of India.
We adopt the base-case scenario and cut our earnings per share forecast for next year to 2020 by 7.7 per cent. Hence, our target price falls to $7.85, from $8.50 previously.
We downgrade from "add" to "hold" as we expect near-term share price to be weighed down by the uncertainty from this licensing change.
Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.