Excerpts from recent analyst reports
DBS Vickers maintains 'buy' call and $1.20 target for Yangzijiang Shipbuilding
Yangzijiang has secured a maiden offshore order. It’s 78% owned subsidiary - Jiangsu Yangzijiang Offshore Engineering, has entered into a turnkey contract with Explorer I Limited, which is wholly-owned by Mena Offshore Investments (MENA) to construct a drilling rig worth US$170m.
It comes with an option for one additional identical unit. The rig is scheduled for delivery by Q215. The contract price is in line with similar orders by other Chinese yards eg Cosco.
It represents a discount of 20% to Singapore rigbuilders. Gross margin is expected to be around 10% assuming smooth execution.
Separately, Yangzijiang has also signed a LOI with Toronto listed design house - SSP Offshore, to commence detailed design and construction engineering for the construction of the first SSP unit. This is a significant milestone for Yangzijiang into offshore.
The ability to secure jack up and FPSO orders as a new player is commendable. Maintain BUY, TP: S$1.20.
Recent story: YANGZIJIANG: Maintaining earnings in downturn with diversification
OSK-DMG highlights new major shareholder of Technics Oil & Gas
Analyst: Lee Yue Jer
A new substantial shareholder of Technics Oil & Gas has emerged in the form of Eversendai Corporation Berhad (EVSD MK), a Malaysian-listed integrated structural steel turnkey and power plant contractor with a market cap of RM 1.0b.
“To secure a stronger footing in the oil and gas fabrication sector.” Datuk AK Nathan, Executive Chairman and Group Managing Director of Eversendai, stated that this investment is “in line with the company’s business plan to venture into inter-related sectors.”
Long-term strategic investor. Having already secured a 13.6% stake in Technics, we believe that Eversendai will continue to purchase more shares for a 20% stake. A couple of reasons contribute to this belief: i) Eversendai is in a strongly net cash position with MYR158m of net cash; and ii) At 20%, Eversendai can perform equity accounting of Technics’ strong results and most likely get a board seat.
We also understand that Technics will not be issuing new shares, and recent trading volumes suggest that Eversendai is building up its stake from the open market. There have also been no announcements on changes in ownership levels of current large owners.
Maintain Buy with TP $1.20. Our valuation remains at 12x FY13F EPS, a somewhat higher multiple than other companies in the sector due to the value-unlocking catalyst of the NOG listing. The resultant TP is $1.20, and factoring in the 6¢ dividend we expect this year, total upside is 20%.
Recent story: MENCAST, MTQ, TECHNICS OIL & GAS: Subsea contractors growing strong
Barclays reiterates its Overweight rating and $6.50 target for Sembcorp Marine
Analysts: Clement Chen, Scott Darling, Rita Wu
Order momentum picking -- In what has already been a record year for orders, Sembcorp Marine announced another drillship order from Sete Brasil for US$806mn. This brings its year-to-date orders to S$10.4bn.
We expect order momentum for the company to pick up going into 2013 from the likely return of drilling semi-submersible orders. Sembcorp Marine is our preferred pick in the rig-building space and we expect the shares to react positively to this new order.
With its shares trading at 11x 2013E P/E, we believe valuations remain attractive for a pure-play rig-builder leveraged to a continued increase in oil industry spending. We reiterate our OW rating on the company.