Sembcorp Marine

DBS Group Research on 3 Sept 2012

AUGUST was a bumper month for Sembcorp Marine (SMM), with $6.1 billion added to its order book. Included were the five drillships and the two anticipated floating production, storage and offloading (FPSO) projects for Petrobras. These have set new records for SMM, with FY2012 YTD order wins of $9.1 billion exceeding pre-crisis peaks, and its $12.6 billion order book translating into a book-to-bill of 2.6 times, extending earnings visibility.

On the back of rising rig day rates and tightening rig capacity, the pipeline for potential orders remains robust. We raise our FY2013 order wins assumption to $5 billion in view of this. In the near term, we see SMM as a key contender for two harsh environment Cat J jack-ups for Statoil worth more than US$1 billion.

We expect earnings to bottom in FY2012, before recovering 17 per cent yoy in FY2013, and 4 per cent in FY2014. The recovery in earnings is expected to commence from H2 2012, which forms 61 per cent of our FY2012 estimate, buoyed by higher turnover and improved margins. We maintain our FY2013 estimate despite raising our order wins assumption as we tweak our order book recognition schedule.

Growth in FY2013/2014 is underpinned by higher revenues from order book drawdown, and on commencement of higher-margin ship repair contributions from the new yard in FY2013, with full-year contributions from all four drydocks in FY2014.

Our target price for SMM of $5.85 is maintained. SMM is a prime beneficiary of the current upcycle of deepwater, harsh environment rigs. We see near-term catalysts in the form of strong order wins momentum on a robust project pipeline and improving earnings outlook. Maintain "buy".
BUY