DMG & Partners Research, Aug 19
KEPPEL Corp's (KepCorp) ("neutral", target price $11.23) results were slightly above expectations while Sembcorp Marine'a (SMM) ("neutral", target price $4.65) were in line.
KepCorp and SMM achieved solid Q2 2013 operating margins of 14.1 per cent and 13.0 per cent, respectively. Outlook remains mixed as strong rig demand is offset by intense price competition from overseas yards. We believe KepCorp and SMM will continue to pursue new products to differentiate their yards from competition.
KepCorp is working on designs for floating liquefied natural gas with Golar and an ice-class jack-up with ConocoPhillips, while SMM is aiming to speed up productivity gain with its Tuas yard.
Yangzijiang Shipbuilding Holdings' ("neutral", target price $1.00) results beat estimates on higher held-to-maturity investments, while Cosco Corp Singapore (not rated) again disappointed against consensus numbers.
China recently announced a three-year plan to restructure the sector by controlling new capacity, promoting innovation and moving to high-end offshore products. We believe such moves are positive in the long term but see no catalyst to invest in the sector now.
Vard ("buy", target price $1.10) surprised us and the market with a 20 million-Norwegian krone net loss in Q2 2013 due to ongoing challenges in Brazil, where we estimate it booked a 200-krone million provision for delays and potential losses and 80 million kroner in goodwill writedown at its Niteroi yard.
The recent 6.5 billion-krone award for four pipelaying support vessels from Technip-DOF is positive, and we expect Q3 2013 to show a recovery in Ebitda margins to 8 per cent, assuming no more write-off and provisions.
Ezion Holdings ("buy", target price $3.26) remains our top sector pick given its strong growth profile and undemanding valuation. In the mid/small-cap space, we like Nam Cheong ("buy", target price $0.37) and Kreuz Holdings ("buy", target price $1.14), and expect the stocks to re-rate on their strong earnings profiles, attractive valuations and positive news flow from new contracts.
Sector - NEUTRAL
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