SMM and Kep Corp: Religare issues a relative value strategy note. Sembcorp Marine (Buy, TP: $5.85) has recently outperformed Keppel Corp (Buy, TP$12.20) by an extreme amount and history argues for mean reversion according to house’s Peer Divergence Model. Street feedback suggests that investors may either be short-covering, expecting order wins from SMM to catch up or could be buying SMM SP on special dividend expectations. A special dividend announcement from SMM is expected, but believes SMM shares have already run on the expectations and KEP is now likely to Outperform in the near term.
Advocates switching out of SMMand into KepCorp, or buying KepCorp outright for long exposure to the Singapore offshore yards industry with the best near-term risk/reward and at a cheaper valuation.