Hot stock: Sembmarine shoots up 9%, partly led by renewed merger hopes

SEMBCORP Marine (Sembmarine) shares rallied as high as nearly 13 per cent on Monday on relatively robust turnover with analysts attributing the surge to "beaten down cyclicals", a rise in crude prices and broader vaccine optimism.

Within the first two hours of trading, the counter shot up to 15 Singapore cents, gaining 1.7 cents or 12.7 per cent and by 12.30pm pared some gains and was trading at 14.5 cents - up 1.2 cents or 9 per cent.

Sembmarine's advance has outperformed the market's key Straits Times Index that is up 0.9 per cent so far.

Trading activity on the counter was also higher with 217 million shares done and worth nearly S$31 million, making it the day's fifth most active by midday trading.

"The rise in crude oil prices is helping to drive the interest in Sembcorp Marine. Although, these are all part of the broader vaccine optimism that has helped the assets, sensitive to both risk and growth outlook, climb into the start of the week," remarked Pan Jingyi, senior market strategist at IG.

She added: "With hopes that the vaccine deployment in December could eventually lead to widespread vaccination, there has been anticipation of a recovery in demand within the crude oil market and therefore, its related industries. From a technical perspective, prices have also broken above its 50-day moving average, exhibiting a bullish signal".

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Crude prices firmed during the Asian session on Monday, led by continued optimism since last week on the progress of coronavirus vaccine developments and their rollout. The encouraging news have fuelled hope that economic activity could pick up and alongside that, energy demand, despite the continued rise in Covid-19 cases in many countries. Brent, the key global oil benchmark is up 0.4 per cent, while West Texas Intermediate rose 0.2 per cent.

Some suspect one other factor that may be galvanising Sembmarine's stock - the big reshuffle at conglomerate Keppel Corp and more specifically the appointment of Chua Hsien Yang as director of group M&A - a newly created position.

Mr Chua, currently the chief executive officer of Keppel DC Reit Management, has extensive experience in the real estate fund management and hospitality industries, including M&A (mergers and acquisitions) and will drive Keppel's sharpened and more disciplined M&A strategy, said the company in a statement.

Keppel has earlier said that its offshore and marine unit, hit by the pandemic-led oil slump, was under a strategic review where "all options, both organic and inorganic" were being considered.

That plus the leadership changes at Keppel, chiefly including an individual dedicated to drive M&A, could once again fuel speculation of a mega merger between the two giant rig builders Keppel Offshore & Marine and Sembmarine - a long-anticipated and hoped for but yet to happen consolidation.

"In the current climate - rising competition and downturn - I don't see these two companies ending up standing alone forever. It is not unreasonable for the market to read it (Keppel's latest appointment) as one with an eye on industry consolidation," said a market watcher.

He added: "But it takes two hands to clap. There will be challenges. This will not be a merger of equals but more an acquisition. Will Sembmarine go for it?"