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Agenda
�Company Background
�Business Drivers
�Financial Analysis
�Risk Factors
�Peer Comparison
�Conclusion
�Q & A
Company Background
�Sembcorp Marine (SMM) is a global marine and offshore engineering group, specialising in integrated solutions in ship repair, building, conversion, rig building and offshore engineering & construction.
Business Segment
14%
67%
18%
1%
% Sales (FY 2010)
Ship repair
Rig Building
Ship
Conversion
/offshore
16%
54%
29%
1%
% Sales (9M 2011)
Ship repair
Rig Building
Ship
Conversion
/offshore
Source : Company Annual Report
Business Drivers
�Oil and natural gas prices
- Supply and demand
�Upstream capital expenditures
- Spending by Oil & Gas (O&G) industry
�Worldwide rig count
- Rig demand driven by O&G prices
Case for Higher Oil Prices
�Rising world-wide energy demand
- driven by Emerging markets
�Uncertainty in world events
- Civil wars, terror attacks, etc
�Supply not keeping up with demand
- long lead time to increase oil production
Definitions
OPEC
- Organization of the Petroleum Exporting Countries- Current 12 members - Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, Venezuela
EIA- U.S. Energy Information Administration
British Thermal
Unit (BTU)
- amount of heat required to increase the temperature of a pint of water (16 ounces) by one F. - BTUs are measurements of energy consumption, equivalent to kilowatt-hours (3412 BTUs = 1 kWh) or joules (1 BTU = 1,055.06 joules). -A wooden kitchen match - 1 BTU, and air conditioners for household between 5,000 and 15,000 BTU.
World Energy Consumption
0
100
200
300
400
500
600
700
800
900
1990 2000 2008 2015 2020 2025 2030 2035
OECD Non-OECD Total
Source : EIA
quadrillion Btu
WTI Crude Oil Price
0
20
40
60
80
100
120
Jan 2010Jul 2010Jan 2011Jul 2011Jan 2012Jul 2012
West Texas Intermediate (WTI) Crude Oil Price
Historical spot price STEO price forecast
110
90
70
Source: Short-Term Energy Outlook, November 2011, EIA
dollars per
barrel
OPEC Basket Price
020406080
100120140160
Weighted Average Value ($US)
Weighted Average Value ($US)
Source : Organization of the Petroleum Exporting Countries
112
38
140
Crude Oil Forecast
� “EIA expects the U.S. average refiner acquisition cost of crude oil to remain relatively flat, averaging about $100 per barrel in 2011 and 2012...” – EIA
� “EIA expects that world crude oil and liquid fuels consumption will grow from its record‐high level of 87.1 million barrelsper day (bbl/d) in 2010 to 88.2 million bbl/d in 2011 and 89.6 million
bbl/d in 2012” – EIA
� “World oil demand is forecast to grow by 1.2 mb/d in 2012 to average 89.0 mb/d.” - OPEC
Upstream Capital Expenditures
� “Worldwide upstream oil and gas spending in 2012 will climb by 10% to reach $598 billion, according to a recent outlook by Barclays Capital...” – Oil and Gas Journal, Dec 2011
� Petrobras, will invest nearly $55 billion in 2012... it would invest $224.7 billion in the 2011-2015 period, the largest capital expenditure budget in the oil industry...” – Dow Jones Newswires, Aug 2011
� “Chevron announced a $32.7 billion capital and exploratory spending program for 2012...” - rigzone Dec, 2011
Upstream Capital Expenditures
� “ConocoPhillips said it would spend $15.5B on capital projects next year, about 15% higher than its estimated 2011 budget.” - rigzone Dec, 2011
� “Lukoil Group's investment costs for 2012-2014 are expected to be approximately $48 billion, including $13.9billion in 2012.” - rigzone Dec, 2011
Recent Rig Counts
�Rig count – measures business health for the drilling industry and suppliers
�Leading indicator for demand for oil drilling
Recent Rig Counts
22421829
21742395
27463043 3116
3336
2304
2985
3429
0
500
1000
1500
2000
2500
3000
3500
4000
Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Oct-11
Average Total World Rig count
Average Total World Rig count
Source : Baker Hughes
Recent Rig Counts
Source : Baker Hughes
AreaLast
CountCount
Change from prior
count
Date of prior count
Change from Last year
Date of Last
year’s count
U.S.2 Dec
111993 -7
23 Nov 11
+28024 Nov 2010
Canada2 Dec
11484 Unchanged
23 Nov 11
+3524 Nov 2010
InternationalOct
20111197 +23
Sept2011
+98Sept2010
Business Drivers – a Checklist
�Oil and natural gas prices
- favorable oil prices for exploration
� Increased upstream capital expenditures
- Recent spending activity by Oil & Gas (O&G) industry
�Worldwide rig count
- Increasing number of oil rigs
Outlook for the oil and gas industry
�Medium and long-term fundamentals positive.
� Increasing long-term demand for oil
� High energy price
� Exploration and production (E&P) are increasing further into 2013
�Affected by global economy.
� Euro debt crisis
� US economic slowdown
� Concerns over China
Sales & Order Book
�Total sales over preceding year net order book ratio ranges from 63% to 82%
0
2000
4000
6000
8000
10000
12000
14000
16000
2004 2005 2006 2007 2008 2009 2010 9M
2011
S$
'M
Sales Order BookSource : Company
Order book- Current Options
• Jackup options likely to be exercised
– Above average age of fleets owned by established drillers, e.g. Noble, Atwood
– Utilization rates for new fleets much higher than old ones
– Looking to renew their fleets
– Demand for newer generation rigs
Order book – Outstanding Bid
• In June 2011, Petrobras (leading energy company in Brazil) launched a tender for 21 drilling rigs
• SMM bid for 6 deep-water drilling units, worth about US$4.2bn
• The winners of the tender could be announced by 1Q 2012
• In a strong position to win a drillship order
– The fourth lowest bidder in the initial tender
Capacity Expansion to Fuel Growth
• New integrated yard in Singapore at Tuas (206 ha) over 16 year
– Partial operations in 2012, completion at end-2013
– Increase revenue in the high-margin ship repair business from S$646mn in 2010 to S$1.2-1.3bn in 2014
• New yard in Brazil
– Plan to establish a greenfield yard in Brazil
– Invest US$350-500mn over the next two-three years
– Have received environmental permits for the yard
Risk Factors
�If a significant number of current customers cancel orders without providing adequate compensation
�Poor execution of order book, slow recognition of revenue
�More challenging macro environment and prolonged credit crunch have affected the pace of contract awards
Re-rating
�Stimulus provided by European government and another round of QE conducted by the US government would improve global sentiment and result in a spike in crude oil price.
�The drillers would take a more positive view of capex and exercise more order option and award more contracts.
Peer Comparison
Note : ttm dividend yield inclusive of special dividend
SMM KEP STI^
Last Price/Index 3.70 9.00 2,635.25
Current P/E 10.09 9.14 7.45
Estimated P/E (12/11) 10.82 10.87 -
Market Cap (M SGD) 7,705.09 16,053.19 438,076.31
Price/Book (mrq) 3.55 2.35 1.26
EPS (SGD) (ttm) 0.37 0.98 -
Est. EPS (SGD) (12/11) 0.34 0.83 -
Volume (M) 10.43 4.99 -
Last Dividend 0.36 0.42 -
Dividend Yield (SGD) (ttm) 9.73% 4.52% 4.17%
Shares Outstanding (M) 2,082.46 1,783.69 -
Source: Bloomberg Last price as of 15.12.2011
abbr. mrq = Most Recent Quarter; ttm = Trailing Twelve Months
Keppel – Dividend Information
YearGross Dividends
(cents)Special Dividends
(cents)2010 42 -
2009 38 ~23.02008 35 -
2007 19 452006 14 14
Source : Company (Keppel Corp)
Order intake weaker than Keppel
• SMM 9m order book – S$5.2bn
• Keppel 9m order book – S$8.2bn
• However Keppel has greater capacity in jackupcontracts.
• Order intake relative to capacity similar
• SMM has more slots for 2013-2014 deliveries (Keppel-3,SMM-5), would command a pricing premium
• Keppel’s order momentum slow, while SMM’s order momentum continuing
Recent Developments
�Lower sales (9M2011) decrease by17.1% to $2,962.6M mainly due to many new jackup rig building projects, secured since 4Q 2010, still at the planning stage
�9M 2010
- revenue recognition on delivery of Petro Rig III
semisubmersible rig
- the sale of CJ-70 harsh environment jack-up rig
Recent Developments
�higher revenue recognition from ship conversion and offshore projects
�gross profit was lower mainly due to fewer jack-up and semi-submersible rig projects. (i.e. ship repair, shipbuilding offshore engineering & construction less profitable)
Valuation
For the year
2006 $’000
2007$’000
2008$’000
2009 $’000
2010 $’000
E2011$’000
Turnover 3,545,049 4,513,123 5,063,948 5,724,742 4,554,863 4,047,200
EBIT 228,233 349,029 501,837 862,354 942,564 733,542
ProfitBefore
Tax312,523 369,502 545,198 906,059 1,077,888 837,342
Net Profit 240,040 245,770 430,158 698,542 860,266 729,385
Projection
For the yearF2011$’000
F 2012$’000
F2013$’000
F2014$’000
Turnover 4,047,200 4,427,534 4,753,548 5,052,526
EBIT 733,542 795,956 854,639 908,455
Profit Before Tax
837,342 886,773 948,147 1,004,788
Net Profit 749,385 736,022 786,962 833,974
Key Data
�52-week range S$3.05 - S$6.03
�Market capitalization S7,610.85M
�Shares outstanding 2,077.90M
�Free Float 35%
�Avg. daily volume (‘000) 11,806
�Avg. daily volume (M) S$46.9
Recommendation
Cost of Equity 9.5%
Cost of Debt 3.4%
Weighted Average cost of Capital 9.1%
Forward Revenue CAGR 5.8%
Fair Value $4.24
Current price (As of 15.12.2011) $3.70
Projected P/E 12.1
• Based on FCFF - BUY
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