DBS GROUP RESEARCH on 6 Nov 2012
Q3 2012 PATMI fell 48 per cent y-o-y to $116 million, below expectations because of slower-than-expected drawdown of orderbook on new projects. Only one jackup from Noble hit the 20 per cent recognition milestone this quarter versus three projects in Q2 2012, while Q3 2011 was boosted by the recognition of the Songa Eclipse semisub rig. Associates' contribution weakened to $12.7 million, down 27 per cent due to lower contributions from Cosco Shipyard Group.
Q3 EBIT margin improved by one percentage point q-o-q to 14.1 per cent; stripping out the impact of forex losses of $14.8 million from the revaluation of Euro and US dollar-denominated assets into the strong Singapore dollar, we estimate Q3 EBIT margin to have been a much healthier 15.8 per cent.
We cut FY2012-2014F earnings by 4-15 per cent as we adjust our orderbook recognition schedule, lower EBIT margins by 0.6-1.4 percentage points, trim FY2012 order wins by $0.5 billion to $11.4 billion. Q4 2012 should be the best quarter for the year, on expectations of higher margins and sales, which should be boosted by the initial recognition of its first drillship for Sete Brazil, while margins will be boosted by the completion of Safin jackup and GDI jackup which will be completed in Q1 2013, offsetting lower margins from the drillship.
Maintain "buy", TP trimmed to $5.20. While the stock could come under near-term pressure due to earnings cut on lower margin guidance, SMM remains a prime beneficiary of the current upcycle for demand of deepwater, harsh environment rigs. With a net orderbook of $12.1 billion, buoyed by record FY2012 YTD order wins of $9.1 billion, revenue visibility is strong. However, we believe margins could be under pressure in the range of 10 per cent to 13 per cent as new rig designs are affected by the impact of learning curve in the initial ramp up phase. On a brighter note, higher ship repair sales from capacity expansion at the new Tuas yard will raise the overall blended margins for the group in the long run.
BUY
BUY
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