Why Sembcorp should not expect much from its shipyard segment

Its new build orders will likely remain below required replenishment levels.

Sembcorp Marine's earnings outlook for shipyards remains weak, a report by UOB KayHian noted. This comes as new build orders are likely to remain below the $4b to $5b order replenishment level that the group requires annually.

"However, we are cognizant of tactical trades in the current environment, driven by contract awards. We estimate that for every $500m in additional contract wins above our assumption, translates to a 3-4% upside to target price," the brokerage firm said.

Meanwhile, UOB noted that the group is well-positioned to capitalise on higher liquefied natural gas demand, which will spur the need for more LNG terminals.

Sembcorp Marine (SMM) is well-positioned to capitalise on this through its stake in GraviFloat. GraviFloat’s technology of redeployable, gravity-based, modularised LNG and LPG terminals serves as a 10-30% more cost-effective solution than FSRU solutions. This is an attractive proposition in the current budget-conscious environment.