Monday, March 26, 2012

Journey To Retirement Part 8 -- SembMar

The eighth part of my investment portfolio in which objective is to create wealth to retire.

Stock : SembCorp Marine
SembCorp Marine, SembMar, was listed in 1987 in SGX.  In its earlier days it was an independent entity from SembCorp only after 1997 when it was being acquired by SembCorp that it soon become a part of SembCorp.  SembMar main business is ship repair, newbuilding, ship conversion and offshore engineering.  As of today, SembMar is considered the world number 2 rig builders just behind KepCorp.  Was vested in SembMar in 2010 at a price of $3.43.  Then has not considered putting SembMar into my investment portfolio as already vested in KepCorp, a merely similar business in nature and does not offer any diversification to my overall portfolio.  Saw the value in SembMar and opted for a mid-term investment then. However, in 2011, I decided to put SembMar into my investment portfolio reasons being :-

1. SembMar has a strong order books
2. Though similar business with KepCorp, KepCorp is a conglomerate with diversify businesses whereas SembMar is a pure Offshore/Marine business and that is what was lacking in my portfolio.
3. Like other local blue chips, it has a history of rewarding shareholders with good dividend.

As such SembMar is classified under "growth stock" in my investment portfolio mainly due to its pure nature in the cyclic Offshore/Marine business despite having a historically good dividend payment (which could classify under the "growth-cum-income stock" category).  As it was an initially attempt for mid-term investment, then did not vested a lot in it and hence now definitely looking for opportunity to acquire more shares and without any questions, recession scenario will be the best chance to get it.

Potential Upside :
The rising crude oil price which causing arising in demand of rig buildings and other marine activities without any doubt is the potential upside for SembMar.  As of the FY report in February 2012, SembMar has $6.3 billion of contracts worth in its order book which extends till 2015.  Furthermore, SembMar like KepCorp is also eying for more contracts with Petrobras and together with KepCorp, it is widely expected to be able to win some of the Petrobras contracts.  The Petrobras's contracts without any doubt should be the positive catalysts for SembMar potential upside should it win.

Potential Downside :
Offshore/Marine sector is cyclical in general and as a pure Offshore/Marine company, this is where the potential downside risk lies.  Should the global economy turns sour or recession scenario, the demand of offshore/marine activities like ship buildings/repairing or rigs building will be tampered off as well and this will eventually hurt SembMar revenue and profit margin. 

Personal Expectation :
The minimum expectation for SembMar is ability to at all time maintain good cash position in order to bid for more contracts.  At the same time, the management should have the ability to maintain strong order books despite economic downturn.  As a "growth stock", the dividend payment is considered an added bonus to my investment and should it be able to maintain the historically good dividend payout, that will be a secondary expectation.

SembCorp Marine

No comments:

Post a Comment