Clearing headwinds
? SMM expects 1H22 to be significantly better than 1H21 (loss: S$647m), but
we think returning to profitability could take some time.
? SMM is venturing into niche defence segment with repair jobs from the US
navy, while finalising contract for a Brazilian naval petrol vessel by Jun 22.
? Net orderbook rose 34.6% qoq from S$1.3bn in 4Q21 to S$1.75bn in 1Q22.
We project S$2bn order wins for FY22F. Reiterate Hold with a S$0.09 TP.
Higher net orderbook (4Q21:S$1.3bn); venturing into defence
With S$1.51bn of projects under execution (with total original contract sum of S$5.45bn)
and S$0.24bn of ongoing Repair & Upgrade projects, this brings 1Q22 net orderbook to
S$1.75bn (+34.6% from 4Q21). This is despite completing 6 of 12 vessels expected for
completion in FY22F. Transocean Atlas is also expected for delivery in 1H22F. Notable
new order wins in 1Q22 include a newbuild contract on a Wind Turbine Installation Vessel
(WTIV) with Maersk, which we previously estimated to be worth US$300m-500m (S$415m692m). SMM is still finalizing the Brazilian Navy on the construction of the Antarctic Support
Vessel “NapAnt”, a Brazilian Navy Research Vessel Project, with contract award expected
by Jun 22. It also secured the repair jobs for three US Navy vessels in 1Q22, following
some that were completed in 3Q21. We think establishing a foothold in the defence sector
may set its margins and competitiveness apart from its Korean competitors.
Improving industry outlook; chasing new contracts
SMM expects an improving industry outlook backed by rising oil prices, severe under-investments in exploration and production in recent years, and the critical need to replenish
depleting production. Upstream also reported SMM’s hopes to win the EPC contract for a
FPSO (total contract size: US$2bn) destined for Santos’ Dorado oilfield development in
offshore Australia, in addition to its front-end engineering design (FEED) work.
Net gearing reduced to 0.38x; labour shortage still a challenge
Following the delivery of six vessels, including the Johan Castberg newbuild FPSO to
Equinor in Feb 22, SMM improved its net gearing from 0.49x in 4Q21 to 0.38x. 1H22 profit
is also expected to outperform 1H21 (net loss of S$647m). As most orders are at tail-end
stage, supply chain issue could be minimal but we believe labour shortage may still be a
challenge in the near term. However, we are comforted that SMM foresees no further
provisioning for needs for 1H22F (S$839m provided in FY21). Risk of cash call is low for
now with c.S$720m of the S$1.5bn rights issue reserved for working capital.
Reiterate Hold with a TP of S$0.09
Our TP is based on 0.8x FY22F P/BV (3-year historical average). Discount could be
narrowed post-merger completion of KEP/SMM since SMM can ride on combined entity’s
efforts from KEP O&M. KEP O&M ’s YTD announced contract wins amounted to S$385m,
consisting of FPSO contracts (worth S$250m) and two KFELS B Class jackup rigs (worth
S$135m).