DBS Research sees upside for Sembcorp Marine (SMM) after its announcement on 6 October 2017 regarding the sale of nine Pacific Class 400 jack-up rigs to Borr Drilling “at an aggregate consideration of approximately $1.77 billion.
While it’s a whopping 30% discount to the original contract value, SMM’s agreement with Borr Drilling includes a “market-based fee clause that allows SMM to share the uplift in rig prices upon delivery”.
On a sector level, DBS Research also noticed increased rig transactions from March to September 2017, particularly because more players are entering the field.
As such, although rigs are selling at unexpectedly low discounts, DBS Research is positive on a recovery in prices over the next 12 to 18 months on the back of rig utilisation, improving charter rates, oil recovery and rising CapEx.
DBS Research looks to SMM as a “pure play to tap on the recovery in the oil and gas sector”. Keppel Corp is another notable stock as a proxy for property and offshore and marine sector recoveries.
Apart from the above two stocks, DBS Research thinks SembCorp Industries and Yangzijiang Shipbuilding are worth some consideration too.
SembCorp Marine Limited (SGX: S51) – $2.30
Keppel Corporation Limited (SGX: BN4) – $7.60
SembCorp Industries Limited (SGX: U96) – $4.00
Yangzijiang Shipbuilding Holdings Limited (SGX: BS6) – $1.70