SembCorp Marine
China kicker, rolling forward to FY09 earnings
BUY Price Target : 12-month S$ 7.90 (Prev S$ 5.00)
Story: We are (i) raising SMM’s earnings estimates for FY07 and FY08
by
0.5% and 9.0% on the back of higher earnings from Cosco Shipyard Group
for
FY07 and FY08 and marginally raising our order win assumptions for FY07
to
S$5bn from S$4.8bn previously; (ii) introducing FY09 estimates; and
(iii)
rolling forward our valuation to FY09 earnings.
Point: We believe that the cycle has more room to run and there is good
visibility to revenue – excluding shiprepair, 96%, 75% and 45% of
revenue
in FY07, FY08 and FY09 respectively are already covered by confirmed
orders. We are forecasting new order wins of S$5bn in FY07, and S$3.8bn
each in FY08 and FY09.
Relevance: Our fair value is S$6.80 based on FY08 earnings, rising to
S$7.90 based on FY09 earnings. Given the strong visibility, our target
price is based on FY09 earnings. Maintain Buy with a raised target
price
of S$7.90 based on 20x shiprepair earnings, 18x rigbuilding and
conversion
earnings, 25x earnings from Cosco Shipyard Group and valuing SMM’s
6.7%
stake in Cosco Corp using target price of S$6.10. Assuming that SMM
continues with its 75% dividend payout ratio, yield is still attractive
at
3.1% for FY07 and 4.3% for FY08 in spite of the strong run up in share
price.