Singapore, July 1, 2013 : Sembcorp Marine’s PPL Shipyard has secured additional orders for two turnkey contracts worth a combined value of US$417 million from repeat customer Integradora de Servicios Petroleros Oro Negro, S.A.P.I. de C.V. (“Oro Negro”) for the construction of two units of jack-up rigs.
Scheduled for delivery at end July 2015 and end of third quarter 2015, these latest pair of high-specification and high-performance deep drilling offshore jack-up rigs will be built based on PPL Shipyard’s proprietary Pacific Class 400 design. Including the earlier contracts of two identical jack-up rigs placed in November 2012 and another two similar rig units in March 2013 respectively, the total number of Pacific Class 400 jack-up rigs ordered by Oro Negro now stands at six units.
Incorporating the latest drilling equipment for improved drilling efficiency, offline handling features and simultaneous operations support, these new rigs will be capable of operating in deeper waters of 400 feet and drilling high pressure and high temperature wells to depths of 30,000 feet. These rigs will be equipped with increased accommodation with full catering facilities and amenities for a complement of 150 people on board in one-man and two-men cabins.
Mr Gonzalo Gil, CEO of Oro Negro, said “We are very pleased to repeat our orders for an additional two jack-up rigs of similar design with our partner yard, PPL Shipyard. All four jack-up rigs currently under construction in the shipyard are progressing well. With these two additional orders, we look forward to taking delivery of the first unit in the fourth quarter of this year, 2 units in 2014 and 3 units in 2015. Once fully operational, these high-specification jack-up rigs will position Oro Negro as a leading player in Mexico’s growing offshore market.”
Mr Wong Teck Cheong, Managing Director of PPL Shipyard said “We are indeed heartened that Oro Negro has chosen our yard for an additional order of two more jack-up rigs of similar design within a short span of three months. This repeat order is a reflection of the optimism the owner has in the jack-up market. It also signifies the trust and confidence that the owner, Oro Negro, has in PPL Shipyard’s design capabilities, its efficient project execution and track record for quality and timely deliveries.”
The contracts are not expected to have any material impact on the consolidated net tangible assets and earnings per share of Sembcorp Marine for the year ending December 31, 2013.
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Sembcorp Marine ST: bullish bias above 4.15.
Trading Central | 2013-07-02 09:34:00
Update on supports and resistances.
Pivot: 4.15
Our preference: Long positions above 4.15 with targets @ 4.6 & 4.85 in extension.
Alternative scenario: Below 4.15 look for further downside with 3.8 & 3.6 as targets.
Comment: a support base at 4.15 has formed and has allowed for a temporary stabilisation.
Key levels
5.15
4.85
4.6
4.34 last
4.15
3.8
3.6
Copyright 1999 - 2013 TRADING CENTRAL
Sembcorp Marine ST: bullish bias above 4.15.
Trading Central | 2013-06-27 01:50:00
Update on supports and resistances.
Pivot: 4.15
Our preference: Long positions above 4.15 with targets @ 4.6 & 4.85 in extension.
Alternative scenario: Below 4.15 look for further downside with 3.8 & 3.6 as targets.
Comment: a support base at 4.15 has formed and has allowed for a temporary stabilisation.
Key levels
5.15
4.85
4.6
4.27 last
4.15
3.8
3.6
Copyright 1999 - 2013 TRADING CENTRAL
Are Non-Volatile Shares Necessarily Good For Investors?
By Ser Jing Chong - June 14, 2013 | See also: S10S51^STI
“Why do you want to invest?” is a question that will likely prompt unique answers from every individual being asked. But for most, the objective for investing should be the same– we want the best returns we can get. For mutual fund legend Sir John Templeton, his only focus was on “maximum total real return after taxes.”
Sir John was worried about taxes – because he wasn’t in the same position-of-envy that we have as investors in Singapore where there are no taxes levied on our investing gains – but he wasn’t worried about volatility in the market over the long run. And, neither should we.
The price volatility of any particular share in relation to the volatility of the overall market is often taken to be a reflection of its investing-related risks (when it really shouldn’t be the case) and is known as beta.
It is an anecdotal observation of mine that participants in the stock market are often spooked by volatility. To mitigate their worries over volatile stock price movements, they often start hunting for stocks with low betas.
And, for investors who are focused on volatility, marine engineering firm Sembcorp Marine (SGX: S51) and instant-beverage manufacturer Super Group (SGX: S10) would have looked very appealing on 10 June 2011 with their betas of 0.37 and 0.33 respectively (calculated from their share price histories for three years ending on 10 June 2011) at that time as seen from the graphs below.
With Sembcorp Marine and Super Group’s betas, they would fall by 0.37% and 0.33% respectively if the Straits Times Index (SGX: ^STI) retreated by 1%. That’s great news for investors who are worried about volatility, right? Not so fast, buddy.
An investor who picked Sembcorp over Super Group or vice-versa would have had very different investing experiences over the next two years starting from 10 June 2011. SembCorp would go on to drop by 19% in value, while Super Group clocked 210% gains. Meanwhile, the STI remained essentially flat as shown in the graph below.
Source: Yahoo Finance
Sembcorp Marine and Super Group had very similar historical betas, or volatility, on 10 June 2011 but went on to have markedly different returns. What this means is that, investors who were too concerned with volatility of share prices would have wasted precious time and mental resources that could have been better used to understand their underlying businesses instead.
Super Group’s share price appreciation was driven by its subsequent earnings growth. Investors who drilled deeper into its business prior to 10 June 2011 would have noticed the explosive quarterly revenue growth in the company’s Ingredients Sales division (which often hit triple digit percentages) which ultimately contributed to both overall top and bottom-line increases.
On the other hand, SembCorp Marine’s shares had declined as its earnings fell. Prior to 10 June 2011, it had displayed falling revenues even though its earnings grew as margins improved. Earnings growth is always welcome, but there is a hard-cap on any company’s profit margins and earnings can only grow sustainably if Sembcorp Marine can bring in greater revenues over time. Investors who had focused on its business results might have caught on to the point.
As Foolish investors, we should know better than to worry unduly about the historic volatility of shares based on an archaic financial-metric known as beta and instead, focus on what truly matters – the performance of the underlying business.
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Sembcorp Marine offloads stake in China engineering firm
Singapore: Sembcorp Marine’s wholly owned subsidiary, SMOE, has divested 30% of its 49% equity stake in HQSM Engineering to China Huanqiu Contracting & Engineering Corporation, the majority shareholder of HQSM. This comprises 1.2m ordinary shares, representing 30% of the share capital of HQSM, for an aggregate cash consideration of S$5.7m.
Following the divestment, SMOE will retain a 19 per cent equity stake in HQSM.
Established in March 2007, HQSM’s key activities include the engineering and construction of onshore plants. [26/06/13]
WITH OIL PRICES having stabilised at an average level of US$93 per barrel over the past 12 months, Jason Saw and Lee Yue Jer — offshore sector analysts at local brokerage house DMG & Partners Research — have turned to a more selective stock-picking strategy to maximise returns. “ Now that crude oil prices are flat, being selective is the best way to draw value from the offshore sector, which is what our strategy has been since we downgraded the large-cap offshore stocks at the end of last year,” Saw tells The Edge Singapore.
The way Saw sees it, the offshore sector is in a different situation from the one in 2006 to 2008, when oil prices were running up and caused the whole sector to run up as well. “ At this point, most of the large-cap yards — despite their recent order wins — are unlikely to show as much upside as the market expects,” says Saw. For one thing, earnings at the yards are slowing down, with margins coming under pressure from the construction of new products and competition from overseas. Meanwhile, valuations are already on the high side, which limits further growth. Large-cap yards include rig builders Keppel Corp and Sembcorp Marine as well as commercial shipyard Yangzijiang Shipbuilding and offshore support vessel (OSV) builder Vard Holdings.
Image: Saw (right) and Lee are combing the local offshore sector for undervalued stocks with a strong potential for earnings growth. Credit: Samuel Isaac Chua, The Edge Singapore
Now, Saw and Lee are combing the local offshore sector for stocks that are undervalued and display a strong potential for earnings growth over the coming years. Many of the stocks that fall into that category are the smaller companies, with market values of below $700 million, which Lee covers. Meanwhile, stocks above $700 million in market value are considered large-cap stocks, which are covered by Saw. In total, the pair oversees 14 offshore stocks listed in Singapore.
Currently, their top picks include offshore support vessel OSV Nam Cheong and Vard, equipment solutions provider MTQ Corp, liftboat operator Ezion Holdings and Indonesian OSV charterer Marco Polo Marine. “ When crude oil is flat, the ability to grow earnings and valuations is important,” Lee explains. “ Of the five offshore stocks that we like, most have potential for 50% to 60% earnings growth in the next two years, and we are looking at FY2014 value multiples of between just six and nine times. Our focus is now on names that can really show some growth.”
PICKING THE BEST YARDS
While upside from the two rig builders and larger shipyards will likely be muted in the coming quarters, Lee is still bullish over Sarawak, Malaysia-based Nam Cheong, which specialises in building small OSVs such as anchor handling towing and supply (AHTS) vessels and platform supply vessels (PSVs). Nam Cheong also differentiates itself with a risky, yet so far successful, build-to-stock (BTS) strategy, under which it builds vessels ahead of securing orders for them. This enables it to draw high margins of 15% to 20% from selling the vessels to operators on demand or within a much shorter time than having the vessels built from scratch.
More importantly, demand for small-sized OSVs is expected to rise in the quarters ahead, with oil majors such as Brazil’ s Petrobras having recently snapped up 24 3,000-tonne PSVs for work in its oilfields over the next four years. Elsewhere, Saudi Aramco has put up a tender for 16 PSVs, setting expectations of strong OSV demand up ahead. Last month, Nam Cheong sold a 12,000 brake horsepower AHTS to an Indonesian offshore and marine services company. It also sold four PSVs to an existing oilfield services customer based in Asia. Worth a total of US$110 million ($138.1 million), the five OSVs are scheduled for delivery between 2Q2013 and 1Q2014, and will take the number of vessels sold by Nam Cheong so far this year to 18. Nam Cheong is currently building US$1.7 billion worth of vessels with deliveries scheduled for well into next year.
“ Nam Cheong has an order book that would be the envy of its peers,” says Lee, who expects further growth in demand on the back of a shortage of smaller OSVs in the quarters ahead. “ This yard is definitely well positioned, with a 10% share of the global shallow-water OSV market. Given its visible earnings growth over the next two years and potential for more orders, the stock is still trading at eight times price-to-earnings (PE) multiples, which are very compelling valuations.”
Meanwhile, demand for more complicated and customised OSVs to support work in deeper and more treacherous waters in areas such as Brazil and the North Sea is also expected to remain robust, making high-end OSV builder Vard a promising bet. While Vard’ s earnings for 1Q2013 were affected by project delays and high operational costs at its yards in Brazil, the company still had a strong order book comprising 46 vessels worth NOK15.5 billion ($3.4 billion). Since 1Q2013, it has won three more orders, taking its order book to an estimated NOK16.4 billion, “ implying nearly 16 months of revenue visibility” , Saw notes in a May 15 report.
More importantly, Vard’ s earnings are expected to rebound by at least 5% y-o-y next year, after its second yard in Brazil becomes operational and potential teething problems are resolved. The company expects to win orders for larger OSVs from deepwater operators this year and has allocated more than NOK600 million for upgrading and raising the capacity of its yards in Brazil, Romania and Vietnam. “ While near-term growth is unexciting, the stock is valued at an attractive 6.6 times FY2013 PE and we see near-term catalysts from large orders extending top-line visibility,” notes Saw. (See Table for DMG’s offshore picks)
VALUE IN SERVICE PROVIDERS
In the offshore services space, liftboat operator Ezion is still looking attractive even after rising 35% this year. Not to be confused with a jackup rig, liftboats are self-elevating, self propelled multi-purpose service rigs frequently used to support the offshore drilling industry. With a fleet of 12 liftboats, Ezion is one of the largest operators in the region and aims to add 14 more units to its fleet by 2015.
Last month, the stock hit an all-time high of $2.45 after it sealed a contract with an Asian based national oil company to provide it with a service rig for a charter value of US$80.3 million over a period of four years from December. After accounting for project costs of US$60 million, which will be fully funded by a recent issue of a six-year bond, Saw estimates that Ezion’ s latest win should contribute US$5.6 million to the company’ s earnings per year from next year. The project is expected to yield a return on asset of 14% after four years.
While gearing is likely to rise from one time currently to 1.14 times by year-end, Saw believes Ezion’ s strategy of taking on long-term charters from national oil companies and reputable oil majors should keep cash flows healthy. “ We are expecting a compound annual growth rate of 55% for Ezion from FY2013 to FY2015. Also, valuations are still low at 13 times PE even though Ezion is the market leader in liftboat deployment in the region right now,” says Saw. “ We were the first to upgrade our price target on Ezion to $2 last year, and we are the first to raise our valuations to $3 this time. We think the outlook is positive.”
Among the smaller caps, Lee is convinced that there is value to be found in shares of MTQ, which repairs and services offshore oilfield equipment such as blowout preventers for the offshore industry. For one thing, the company’ s US$20 million, 40,000 sq m facility, which it had been building in Bahrain since 2009 and is now operational, is expected to break even next year.
Meanwhile, MTQ’ s Perth, Australia-based subsidiary Neptune Marine Services — which it acquired late last year for A$48.2 million cash — has also begun to contribute to MTQ’ s financial performance. For 1Q2013, Neptune Marine Services — which provides subsea and dive support services to the offshore industry — contributed $58.9 million to MTQ’ s revenues, representing more than 60% of total revenues for the period.
“ MTQ is well positioned as the largest servicer of blowout preventers in the region. Its Singapore yard is running at full capacity and its Bahrain facility is seeing huge demand from the region,” says Lee, who is raising his net margin estimations for Neptune Marine Services to 8%. He also expects total earnings from the company to grow 28% yo- y in FY2014. “ We think MTQ is a deep-value play in the offshore sector, with all it businesses operating profitably. This will be a year of growth for MTQ, given that it is trading at just 10 times PE.”
Another potential value play is Indonesian- based OSV charterer Marco Polo Marine, one of the few operators with direct exposure to Indonesia’ s booming oil and gas industry. Owing to the recently implemented cabotage rules, many foreign operators have been forced to abandon their operations in the country, leading to a shortage of capable OSV charterers and causing charter rates to rise rapidly. “ With charter rates in Indonesia currently 30% to 40% higher than other markets, whoever owns the OSVs in the country is going to see some very nice earnings,” says Lee.
Indeed, at least four Marco Polo Marine OSVs are expected to complete their current charter terms within this year and next, and Lee expects the charters to be renewed at better rates. Shares of Marco Polo Marine are down 2% from the start of the year. At its closing price of 37.5 cents on June 20, the stock is trading at 4.8 times earnings. “ This is a good level for investors to enter the stock,” says Lee.
Sembcorp Marine ST: bullish bias above 4.15.
Trading Central | 2013-06-18 09:53:00
Update on supports and resistances.
Pivot: 4.15
Our preference: Long positions above 4.15 with targets @ 4.6 & 4.85 in extension.
Alternative scenario: Below 4.15 look for further downside with 3.8 & 3.6 as targets.
Comment: the RSI is bullish and calls for further advance.
Key levels
5.15
4.85
4.6
4.35 last
4.15
3.8
3.6
Copyright 1999 - 2013 TRADING CENTRAL
