Here's how Sembcorp Marine plans to beat Korean, Chinese rivals

Rig building capabilities to be ramped up.

According to CIMB, given the keen competition from China and Korea, it thinks that Sembcorp Marine will sharpen its rig building capabilities by consolidating its repair, conversion and offshore work at this new yard and better utilise its existing yards for rig-building.

Here's more:

The new yard’s deeper quay (15m) (vs. the old Jurong yard’s 9m) allows SMM to take on semi-sub repair and work that requires thruster installation.

SMM also expects to lower its logistics cost as repair work will be consolidated at one yard, ensuring faster turnaround. One of the dry docks is also able to house large 18,000TEU containerships.

During the shipyard tour for analysts today, we observed that all four dry docks were occupied with repair work. We expect ship repair revenue to increase by c.50% from S$642m in FY12 (c.14% of SMM’s revenue) to c.S$1bn in FY14.

There are no changes to our FY13-15 EPS and target price (14x CY14 P/E, 10% below the O&M industry’s mid-cycle).

What Happened
We visited phase 1 of SMM’s new integrated yard in Tuas, West Singapore today. The yard started operations in Aug 2013.

The 73ha yard is equipped with four very large crude carrier (VLCC) dry docks, with total capacity of 1.55m DWT and quay space of more than 3.8km.

The new yard will nearly double SMM’s current repair, conversion and offshore capacity of 1.9m DWT. The estimated current utilisation rate ofthe yard is about 70%, with all four dry docks occupied with repair jobs.

More ships are expected to be progressively rerouted to the yard from Pulau Samulun (Jurong Shipyard’s main repair facility).

Phase2 of SMM’s integrated yard (34.5ha) will take another four to five years to develop. Total capex for phase 1 was about S$900m, which is higher than the original target of S$750m as certain building works (such as the dormitory) were brought forward.