More reprieve for balance sheet to come
? We expect little help for SMM’s cashflow with the US$50m from Transocean
for delivering drillship Atlas. Net gearing as of 1Q22 stood at 0.38x.
? The delivery of the second drillship, Titan (scheduled for 2H22), could help
relieve SMM’s cashflow with a delivery payment of US$350m.
? Reiterate Hold and TP of S$0.09 based on 0.8x FY22F P/BV (3-year
historical average).
Cashflow to see more reprieve from the second rig
? SMM successfully delivered drillship Deepwater Atlas for Transocean to be chartered to
Beacon Offshore on the Shenandoah project in the US Gulf of Mexico, scheduled to
begin in 3Q22. With this, SMM will receive US$50m of delivery payment and the
remaining US$370m will be paid over 5 years from delivery.
? This is one of the two drillships originally contracted in 2014 for US$1.04bn (US$540m
each) for delivery in 2017 and 2018 but which have been delayed multiple times with
deferral of payment as well as variation orders made to the contract value.
? The second drillship, Deepwater Titan, could be delivered by 2H22 with delivery
payment of US$350m and US$90m to be spread over 5 years from delivery. The rig has
secured a drilling contract with Chevron, slated to begin in 1Q23. Assuming no further
delays, we expect the final payment for Titan to have a positive impact on SMM’s
cashflow. Net gearing stood at 0.38x as of 1Q22.
Rigs utilisation up but day rates unchanged yoy
? According to Riglogix, for the month of Jun 22, global drillship utilisation improved to
c.67% from 58% in Jun 21. However, average day rates are stagnant at around
US$260k/day. Semi-subs utilisation also improved to 63% in Jun 22 (Jun 21: 57%), with
average day rates of c.US$257k/day. Jack-up utilisation is better at c.70% (Jun 21: 67%)
but the day rate is US$72k/day in Jun 22 vs. US$78k/day in Jun 21. This is significantly
lower compared to the trough period post GFC in 2011 at c.US$94k/day. We believe a
competitive market and the sustained over-supply situation could be reasons for the
stagnant rates for now.
Reiterate Hold and TP of S$0.09
? The cash to be received from the upcoming delivery of Titan will be positive for SMM
but we gather that order momentum and narrowing losses could be re-rating catalysts
rather than strength in the balance sheet given the already low net gearing position.
? We estimate YTD order wins to be S$800m-915m and order book of c.S$1.95bn YTD,
keeping our order win assumptions at S$2bn. Key risks: cost overruns.
