What’s New
SMM is investing SGD222m in a new steel fabrication facility. This will be located at its Tuas integrated yard and completed by 3Q15. SMM has also commenced the construction of Phase II (34.5ha site) of its integrated yard, which would add three dry docks to its existing four VLCC docks by 1Q17. Estimated cost for Phase II is SGD489m, bringing total capex to SGD711m. It will issue SGD600m of bonds (SGD275m/7-year/2.95%, SGD325m/15-year/3.85%) to fund this.
What’s Our View
SMM says the steel fabrication facility will more than double its efficiency from automation and process improvements. It will function as a central kitchen for steel fabrication for all three phases of its integrated yard. Phase II of the yard’s development would add three dry docks, two with 150,000 dwt capacity and one dedicated to offshore. This would allow SMM to serve a broader spectrum of commercial vessels and offshore units.
The investment is part of SMM’s multi-year plan to consolidate its shipyards into one. It demonstrates SMM’s optimism on the industry’s outlook. The new facilities should improve productivity and position them to meet the demand for bigger and more complex vessels.
Incorporating interest cost from the bonds, we cut FY15E-16E EPS by 3.2-3.5%. We have not accounted for positive effects of efficiency gain. Our SOTP-based TP falls to SGD3.80 from SGD4.04 as we incorporate capex and new debt. Maintain HOLD on muted near-term order outlook.
The FIIs were net buyers of Rs 192cr in the cash segment on Monday while the DIIs were net sellers of Rs. 74cr, as per the provisional figures released by the NSE.
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