atans1

Broker speculating on another big TLC merger

In Infrastructure, S'pore Inc, Temasek on 07/02/2019 at 7:14 am

Following Temasek’s recent $6 billion divestment of Ascendas/Singbridge to CapitaLand, CGS-CIMB sees benefits in streamlining the yards and conglomerate structures of Sembcorp (SCI), SembMaritime (SMM) and Keppel (KEP).

“If the rig building industry does not recover in the next three years, we think the consolidation of both SMM and KEP O&M could strengthen Singapore in the large-scale FLNG (KEP) and FPSO (SMM) newbuild segment as well as create an O&M design and engineering powerhouse, competing head-on with the Koreans.”

‘A possible structure is one mega yard (SMM + KEP O&M), one renewables/utility group Sembcorp Industries (SCI) and one urbanisation/infrastructure group (KEP).”

It thinks Sembcorp could be the long-term winner as a pure renewable energy/utility group focusing on overseas M&A to grow its capacity, commanding higher valuations. Brokers forever flogging this dog.

Meanwhile, it thinks, Keppel could continue to pursue its urbanisation solutions of property and infrastructure development, backed by asset management capital.

The total book value of SembMaritime and Keppel O&M amount to S$5.3 billion. The hypothetical shareholding structure of the enlarged yard could be in the form of a JV, with Temasek having a majority control stake, the broker says.

CGS-CIMB has Keppel, Sembcorp and SembMarine at “add” with target prices of S$8.41, S$3.49 and S$2.46 respectively.

I’m happy with the present Keppel set-up as there’s no guarantee that it’s O&M managers will run the joint show. SembMarine’s O&M managers are second rate by Keppel’s standards.

 

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