Did you miss the recent oil & gas rally? If yes, fret not. Your next best chance to ride on the industry upcycle is here!
Shares of Sembcorp Marine, one of the best proxies for the oil & gas sector, plunged 6% last Friday on the back of poor earnings and weak contract wins for 1Q17.
1Q17 Results Highlights
- 1Q17 earnings was boosted by the divestment of Cosco stake. Excluding this, Sembcorp made a net loss of SGD7 million
- Operating profit margin was impacted by additional costs incurred on a floater project
- Company only secured SGD75 million in new orders in 1Q17
Outlook Turning Positive
However, the company’s outlook is turning positive, as its profitability and order wins are expected to improve. This is because:
- Floater project is expected to be settled in 2Q17, so operating profit margin will normalise
- Company is getting a lot of enquiries and is reportedly running for SGD4-6 billion in new contracts from the non-drilling segment
Based on our understanding, Sembcorp Marine’s proprietary Gravifloat technology (increased stake in March 2016) and new Tuas yard (phase II opened in 1Q17) were pivotal in drawing in enquiries. At present, market is expecting Sembcorp Marine to secure around SGD2.5 billion in new orders for 2017, fairly conservative in our view. However, even at this level of new order wins, Deutsche Bank has derived a target price of SGD2.10 per share on the company, translating to almost 30% upside potential from last transacted price post correction.
Hence, this might very well be the golden opportunity to re-visit the stock and seek exposure to the oil & gas market upcycle!
Gravifloat: Link here
Integrated shipyard @ Tuas: Link here