Sembcorp Marine - CGS-CIMB Research 2022-08-18: Show Me The Money

Sembcorp Marine - Show Me The Money

  • Sembcorp Marine (SGX:S51) shortens the repayment terms from Borr Drilling by one year to 2023- 2024 (previously 2023-2025) for the nine jack-up rigs delivered in 2017-19. Sembcorp Marine said the new terms were due to an improved drilling market. This is in addition to US$29.3m back-end fees payable at maturity. Borr Drilling would pay interest at market rates for the periods between the respective delivery dates and the full payment of the balance amount.
  • Background:
    • In Oct 2017, Borr Drilling ordered 9 Pacific Class 400 jack-up drilling rigs (worth US$1.3bn) from Sembcorp Marine's wholly-owned subsidiary PPL Shipyard. These were stranded rigs that were not delivered due to the plunge in oil price and poor drilling market. Borr Drilling made an upfront down-payment of US$0.5bn, with the remaining ~US$753m to be paid within 5 years from the respective delivery dates (4Q17 to 1Q19).
    • In Dec 2021, Sembcorp Marine announced in-principle agreement with Borr Drilling to defer PPL’s receivables from Borr Drilling from 2023 to 2025 previously.
  • Eight of the nine rigs have been chartered out and the last unit is up for sale by Nov 22.
  • Jack-up rigs’ average utilisation has improved to about 70% (vs. 65% in 2020) although average charter rates are still at about US$71k/day. We think significant newbuilds will only be spurred if utilisation rates exceed 75% and charter rates move towards the US$100k-120k/day levels. Nevertheless, the improved utilisation is a good start.
  • Sembcorp Marine's net gearing stood at 0.44x as of 1H22. We think the earlier repayment from Borr is another future reprieve for Sembcorp Marine, in addition to the delivery payment of US$350m expected from Transocean for its second drillship by Oct 22.
  • Maintain HOLD call on Sembcorp Marine with target price of S$0.108, still based on 0.9x CY22F P/BV.
  • We expect a potential slight positive movement in Sembcorp Marine's share price from this news.

Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @

LIM Siew Khee CGS-CIMB Research | Izabella TAN CGS-CIMB Research | 2022-08-18
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.110 SAME 0.110

Read also CGS-CIMB's most recent report:
2022-11-15 Sembcorp Marine - Yard Capacity To Return To 70% In FY23

Check out the most recent target prices at Sembcorp Marine Target Prices. Listing of analyst research reports at Sembcorp Marine Analyst Report.

Relevant links:
Sembcorp Marine Share Price History,
Sembcorp Marine Announcements,
Sembcorp Marine Dividends & Corp Actions,
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