Seatrium Limited (formerly SembCorp Marine and KOM)

[mulyc]

Finally some good news for shareholders...although there is the risk that SMM could run into cost overruns as mentioned above. But I guess no pain no gain! Hopefully they have a good margin of safety.

[mulyc]

Maybank KE:

SMM would not provide guidance on potential margins, except to say that it is a “good price” for them. At USD540m each, the price tag is lower than the USD806m each for the Brazilian units, but given that the drillships would be built in Singapore, costs should be lower as there are no local content requirements. Based on Transocean’s announcement, it has stated a total price of USD1.24b which included project management and owner-furnished equipment. This would imply that the actual cost is close to the USD600m price tag in Korean yards. We believe operating margins could be in the 12-13% level.

[weijian]

Maybank KE:

SMM would not provide guidance on potential margins, except to say that it is a “good price” for them. At USD540m each, the price tag is lower than the USD806m each for the Brazilian units, but given that the drillships would be built in Singapore, costs should be lower as there are no local content requirements. Based on Transocean’s announcement, it has stated a total price of USD1.24b which included project management and owner-furnished equipment. This would imply that the actual cost is close to the USD600m price tag in Korean yards. We believe operating margins could be in the 12-13% level.

Well, Transocean also mentioned that they have gotten very favorable payment terms, (source: http://www.deepwater.com/investor-relati...s-releases). So who is playing bluff?

Transocean has ordered 5 drillships (4 of them cost 750mil each, 5th cost 725mil) from DSME. In recent times, it is true that some of other DSME's customers like Atwood Oceanics ordered 5 drillships at a cost of ~630mil each and Seadrill ordered 2 drillships at 600mil each. I suspect the difference in price could be due the technical capabilities with Transocean's demand being greater and hence more expensive. Assuming, Transocean is also asking for similar capabilities that it demanded from DSME, with Jurong Shipyard, then it could be a case of SCM uncutting the competition.

Finally all Transocean's 5 drillships with DSME announced in the last 2 years, already have contracts when it was announced. Interesting to see how it ends up for the Jurong Espadon III ones.

http://sweetcrudereports.com/2013/10/16/...-newbuild/
http://www.seadrill.com/modules/module_1...=2&mid=224
http://worldmaritimenews.com/archives/87...-oceanics/

[CityFarmer]

Maybank KE:

SMM would not provide guidance on potential margins, except to say that it is a “good price” for them. At USD540m each, the price tag is lower than the USD806m each for the Brazilian units, but given that the drillships would be built in Singapore, costs should be lower as there are no local content requirements. Based on Transocean’s announcement, it has stated a total price of USD1.24b which included project management and owner-furnished equipment. This would imply that the actual cost is close to the USD600m price tag in Korean yards. We believe operating margins could be in the 12-13% level.

Well, Transocean also mentioned that they have gotten very favorable payment terms, (source: http://www.deepwater.com/investor-relati...s-releases). So who is playing bluff?

Transocean has ordered 5 drillships (4 of them cost 750mil each, 5th cost 725mil) from DSME. In recent times, it is true that some of other DSME's customers like Atwood Oceanics ordered 5 drillships at a cost of ~630mil each and Seadrill ordered 2 drillships at 600mil each. I suspect the difference in price could be due the technical capabilities with Transocean's demand being greater and hence more expensive. Assuming, Transocean is also asking for similar capabilities that it demanded from DSME, with Jurong Shipyard, then it could be a case of SCM uncutting the competition.

Finally all Transocean's 5 drillships with DSME announced in the last 2 years, already have contracts when it was announced. Interesting to see how it ends up for the Jurong Espadon III ones.

I'm inclined to believe that SembCorp Marine is undercutting, base on the current market competition, and excess capacities in the region. I have to admit that I haven't gone thru the numbers yet.

(not vested)

[mulyc]

Maybank KE:

SMM would not provide guidance on potential margins, except to say that it is a “good price” for them. At USD540m each, the price tag is lower than the USD806m each for the Brazilian units, but given that the drillships would be built in Singapore, costs should be lower as there are no local content requirements. Based on Transocean’s announcement, it has stated a total price of USD1.24b which included project management and owner-furnished equipment. This would imply that the actual cost is close to the USD600m price tag in Korean yards. We believe operating margins could be in the 12-13% level.

Well, Transocean also mentioned that they have gotten very favorable payment terms, (source: http://www.deepwater.com/investor-relati...s-releases). So who is playing bluff?

Transocean has ordered 5 drillships (4 of them cost 750mil each, 5th cost 725mil) from DSME. In recent times, it is true that some of other DSME's customers like Atwood Oceanics ordered 5 drillships at a cost of ~630mil each and Seadrill ordered 2 drillships at 600mil each. I suspect the difference in price could be due the technical capabilities with Transocean's demand being greater and hence more expensive. Assuming, Transocean is also asking for similar capabilities that it demanded from DSME, with Jurong Shipyard, then it could be a case of SCM uncutting the competition.

Finally all Transocean's 5 drillships with DSME announced in the last 2 years, already have contracts when it was announced. Interesting to see how it ends up for the Jurong Espadon III ones.

I'm inclined to believe that SembCorp Marine is undercutting, base on the current market competition, and excess capacities in the region. I have to admit that I haven't gone thru the numbers yet.

(not vested)

It won't be a surprise. It has been under pressure to secure contracts for quite a few months already, particularly since 2013 year end they under performed the street's expectations of securing at least 5billion worth of orders in FY13 (think they only managed 4.2).

But as long as they can undercut and still maintain a reasonable margin attained, a contract won translated to more revenue gained. Far better than pricing in line with competition (600+m) and don't even smell the contract win.

Just my two cents.

Vested.

[zerobeta]

I have also heard that the payment terms is very favorable for Transocean? 5% upfront and the rest 95% upon delivery. This gives them incentive to just run away in the middle and SCM will then have to find a new buyer. This also means SCM need to borrow more money or deplete its cash balance to fund the project.
Or what's the normal payment terms for this kind of transaction? is 5:95 normal?

On the upside, the prospect for rigs is quite attractive with many jack ups are getting old and need to be replaced as well as more oil drilling are taking place in deeper water, which require higher-tech rigs like drillships and semi subs (and hence command higher values, also good for SCM because they just recently entered this business). Chinese competitors shouldn't be a concern because they only do jack ups. They still need to beat the Koreans though.

[CityFarmer]

I have also heard that the payment terms is very favorable for Transocean? 5% upfront and the rest 95% upon delivery. This gives them incentive to just run away in the middle and SCM will then have to find a new buyer. This also means SCM need to borrow more money or deplete its cash balance to fund the project.
Or what's the normal payment terms for this kind of transaction? is 5:95 normal?

As far as I knew, 20:80 is the norm. More favorable payment term might be 30:70 or more. Nick is the expert on shipping sector. He might be able to provide more accurate comment.

On the upside, the prospect for rigs is quite attractive with many jack ups are getting old and need to be replaced as well as more oil drilling are taking place in deeper water, which require higher-tech rigs like drillships and semi subs (and hence command higher values, also good for SCM because they just recently entered this business). Chinese competitors shouldn't be a concern because they only do jack ups. They still need to beat the Koreans though.

You might be surprised by knowing that YZJ has secured contract for two (2) semi-subs. The info was stated in YZJ latest end-year FR.

[zerobeta]

I have also heard that the payment terms is very favorable for Transocean? 5% upfront and the rest 95% upon delivery. This gives them incentive to just run away in the middle and SCM will then have to find a new buyer. This also means SCM need to borrow more money or deplete its cash balance to fund the project.
Or what's the normal payment terms for this kind of transaction? is 5:95 normal?

As far as I knew, 20:80 is the norm. More favorable payment term might be 30:70 or more. Nick is the expert on shipping sector. He might be able to provide more accurate comment.

On the upside, the prospect for rigs is quite attractive with many jack ups are getting old and need to be replaced as well as more oil drilling are taking place in deeper water, which require higher-tech rigs like drillships and semi subs (and hence command higher values, also good for SCM because they just recently entered this business). Chinese competitors shouldn't be a concern because they only do jack ups. They still need to beat the Koreans though.

You might be surprised by knowing that YZJ has secured contract for two (2) semi-subs. The info was stated in YZJ latest end-year FR.

there are many types of semi subs, conventionally moored, dynamically positioned, how deep can they go? and who are their clients?

but they still can't do drillships can they? this is the bigger business for SCM because a huge chunk of their orderbook recently came from this rig... this rig has much higher values than semi subs too...

and I also thought Chinese firms focus more on ship building instead of rigs?

I should probably start learning more about them too (a newbie here)

(not vested)

[Nick]

I have also heard that the payment terms is very favorable for Transocean? 5% upfront and the rest 95% upon delivery. This gives them incentive to just run away in the middle and SCM will then have to find a new buyer. This also means SCM need to borrow more money or deplete its cash balance to fund the project.
Or what's the normal payment terms for this kind of transaction? is 5:95 normal?

As far as I knew, 20:80 is the norm. More favorable payment term might be 30:70 or more. Nick is the expert on shipping sector. He might be able to provide more accurate comment.

On the upside, the prospect for rigs is quite attractive with many jack ups are getting old and need to be replaced as well as more oil drilling are taking place in deeper water, which require higher-tech rigs like drillships and semi subs (and hence command higher values, also good for SCM because they just recently entered this business). Chinese competitors shouldn't be a concern because they only do jack ups. They still need to beat the Koreans though.

You might be surprised by knowing that YZJ has secured contract for two (2) semi-subs. The info was stated in YZJ latest end-year FR.

there are many types of semi subs, conventionally moored, dynamically positioned, how deep can they go? and who are their clients?

but they still can't do drillships can they? this is the bigger business for SCM because a huge chunk of their orderbook recently came from this rig... this rig has much higher values than semi subs too...

and I also thought Chinese firms focus more on ship building instead of rigs?

I should probably start learning more about them too (a newbie here)

(not vested)

Over the past few years, numerous Chinese shipyards (including SGX listed YZJ and Cosco Corp) have ventured into rig building to diversify away from the slump in the dry bulk and container vessel building sector. I believe this is one of the reasons why there were fears of margin erosion by SMM due to the heightened competition. Will be interesting to see how our local giants tackle these challenges.

There is a good article here - http://kimwhye.blogspot.sg/2013/05/local...ition.html

(Not Vested)

[orangetea]

It has always been that people are looking to snare the next hot commodity...

Back then when shipping charter rates for a bulk carrier were good in excess of us$20k/day, people wanted to own ships because they can breakeven in around 3 years. Hence, the Chinese companies started to flood the shipping sector with cheap ships, which caused this tsunami of supply and super low prices. Now some of these companies both private and chinese govt ones have folded because it is not making a profit because they were under cutting each other.

Now, they see rigs as the next hot commodity, and wanting to build rigs as well.
I guess the high entry barrier as well as the high spec required by European and US will prevent the chinese from coming in the next 3-5 years.

There is a balance between deploying a cheap and 'unproven/unsafe' rig and a high spec proven one, especially in the deeper and rougher seas. If i were a large old company like chervin, shell, bp or petrobras, i would not want to risk having an incident and court cases on spills and accidents.

In addition, the chinese economy is facing financial issues, i think it will be difficult for new players to borrow to come into the sector.
Even the chinese govt. is allowing some SOE to fail.
Only those which have cash may do that currently. The timing for them to enter is critical. From what i gauge, within the next 3-5 years, the orders for rig replacement will wane as older rigs will be replaced by new and there may not be a need to buy 'a lot of' new rigs until the next cycle. (My gut feel)

The Koreans may prove to be a threat though.

With Basel III coming in next year, lending by banks would tighten.
Theses companies must be able to borrow first. That is the first hurdle imo.

At the end of the day, the reputation, tech expertise and integrity of the rig builder is an important consideration over costs.
Afterall, offshare sectors can command a premium and why should they save on this kind of cost?

Companies that are cash rich can sustain their reach in this sector now that lending has tighten.