Sembcorp Marine (SMM) Sembcorp Marine (SMM) announced this morning that it has secured contracts worth about US$4.0b from Sete Brasil for the design and construction of five drillships, bringing the total order win from Sete since Feb to US$4.8b for six drillships, slightly more than our US$4.7b Brazil orders assumption for FY12. With these orders, SMM has secured about S$8.1b worth of new orders YTD, accounting for 93% of our full year estimate. Though the long-awaited orders are finally announced, this does not mark the end of orders from Brazil as we expect more FPSO work from Petrobras. We estimate SMM’s order book to be about S$11.6b, providing good earnings visibility at a time when uncertainty in the global economy has resulted in a general lack of clarity in corporate earnings outlook. Meanwhile enquiries for newbuilds outside Brazil remain healthy. Maintain BUY with S$5.69 fair value estimate.
Long-awaited drillship orders arrive
Sembcorp Marine (SMM) Sembcorp Marine (SMM) announced this morning that it has secured contracts worth about US$4.0b from Sete Brasil for the design and construction of five drillships based on the proprietary Jurong Espadon drillship design. This is in addition to the US$792.5m drillship contract that the group announced in Feb this year from Sete, bringing the total order win to US$4.8b for the six drillships, slightly more than our US$4.7b Brazil orders assumption for FY12.
Margins expected to rise with repeated execution
The units are scheduled for deliveries between 2Q15 and 2Q19; in comparison, KEP’s first semi-sub for Sete is slated to be completed in 4Q15. We are forecasting operating margins of 8-9% for the first few units with upside from subsequent ones due to execution of repeated units.
Not the end from Brazil
With these orders, SMM has secured about S$8.1b worth of new orders YTD, accounting for 93% of our full year estimate. Though the long-awaited orders are finally announced, this does not mark the end of orders from Brazil as we expect more FPSO work from Petrobras. More specifically, Upstream had reported in Jul that Petrobras would award contracts worth about US$4.5b for the construction of topsides for six FPSOs soon. We expect SMM to be a beneficiary with about a US$700m- US$1b share, but have not included this in our model.
Own a quality company with bright industry outlook
We estimate these orders bring SMM’s order book (ex-shiprepair) to about S$11.6b vs $5.1b as at end 2011. This provides good earnings visibility at a time when uncertainty in the global economy has resulted in a general lack of clarity in corporate earnings outlook. Meanwhile enquiries for newbuilds outside Brazil remain healthy and SMM is seeing interest for various products (e.g. semi-submersibles, jack-ups and FPSOs) which the group is well-positioned to secure given its reputation as a global market leader. Maintain BUY with S$5.69 fair value estimate.
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