Sembcorp Marine - UOB Kay Hian 2022-11-24: Yard Visit Reinforces Our Positive View On SMM For 2023

• It was evident from a bird’s eye tour of Sembcorp Marine’s yard that its integrated design allows the company to carry out projects more efficiently and thus save on time and cost. This was also helped by the implementation of solar and robotic initiatives.
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• In the longer term, PSA’s move to Tuas will have positive spillover effects on Sembcorp Marine’s repairs & upgrades segment.

Visit to Sembcorp Marine's Yard reinforces positive view.

• Sembcorp Marine (SMM, SGX:S51)’s management recently hosted a visit to its Tuas yard. We were able to get an aerial view of the yard’s operations and thus were able to better appreciate its integrated, and hence efficient, yard vs other yards; this is especially in comparison to its old Tanjong Kling yard.
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• Of solar power and robots. Sembcorp Marine completed Phase 2 of its rooftop solar panel installation in 2022. This will be able to cater to an estimated 65% of the energy needs of its steel fabrication works, which is one of the most energy intensive parts of rig building. Hence, this should lead to slightly higher margins due to the cost savings.
• Note that Sembcorp Marine has Phase 3 planned and this is likely to be carried out over the next 2-3 years as business volumes increase. Sembcorp Marine highlighted that its steel fabrication works (i.e. cutting and welding) are almost entirely carried out by roof-mounted robots, which has led to a 30% savings in time.
• Strong potential for new order wins for production assets. We understand that Sembcorp Marine may be in the running for three floating production units (FPU) in the near to medium term. Note that Sembcorp Marine delivered one semi-sub FPU to Shell for its Vito field in the Gulf of Mexico (GOM) in in Jan 22 and is currently constructing a similar FPU for Shell’s Whale field that is also in the GOM. Given its near-term experience, we believe that Sembcorp Marine has a high chance of securing at least one of these FPUs, which we estimate to be around S$350m-500m in size.
• During the yard tour, it was evident that the size and quality of equipment, as well as their location in close proximity to each other, would naturally result in faster and easier integration of the various completed modules.

Synergies with relocation of PSA.

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Adrian LOH UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-11-24 SGinvestors.io

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