• Sembcorp Marine (SMM) shareholders have cleared the way for the proposed combination of Keppel O&M (KOM), voting overwhelmingly in favour of the acquisition.
• We believe the focus will now shift towards transforming its Urban Development business towards an asset-light model with a focus on growing its recurring income.
• Maintain BUY with unchanged SOTP TP of $9.54. Our TP translates to about 1.2x FY23e book value, a slight premium to its historical average as the Group’s transformation plans gain traction. Catalysts expected from a further transformation of its business towards an asset-light model.

The news

SMM shareholders have cleared the way for the proposed combination of KOM, voting overwhelmingly (95.28%) in favour of the acquisition.

Positives

+ Another step towards an asset-light business model. With SMM shareholders voting in favour of the acquisition, the completion of the KOM restructuring is expected to take place on or prior to 28 Feb 2023. We see the divestment of KOM, along with the divestment of Asset Co (previously approved by Keppel shareholders) as an important milestone for the Group as it continues its journey toward an asset-light model.

+ Focus shift towards transforming Urban Development business. With the divestment of KOM, we believe the attention will now shift towards the Group’s transformation of its Urban Development business. We believe the Group will pivot towards real estate-as-a-service solutions by having an asset-light model and one focused on strengthening its recurring income (67% of FY22 earnings).