Sembcorp Marine

Kim Eng on 27 Feb 2014

What’s New
Top US driller Transocean has placed orders for two ultra-deepwater drillships, worth USD540m each, with Sembcorp Marine (SMM). It also has options to purchase three more units, to be exercised within 12/18/24 months. The drillships are of the same design as the seven units SMM is building for Sete Brasil. This big contract follows yesterday’s order win for a USD214.3m jackup unit from Marco Polo. It immediately bumps up SMM’s YTD order win to USD1.3b/SGD1.6b, about 32% of our full-year forecast of SGD5.1b.

What’s Our View
We see the order wins as a very positive development for SMM. Although there are execution risks as it ventures into building of drillships in Brazil, they also present opportunities for SMM to enter the drillship market. This market has traditionally been dominated by Korean shipbuilders and the order from Transocean is a strong endorsement for SMM’s design.
SMM would not provide guidance on potential margins, except to say that it is a “good price” for them. At USD540m each, the price tag is lower than the USD806m each for the Brazilian units, but given that the drillships would be built in Singapore, costs should be lower as there are no local content requirements. Based on Transocean’s announcement, it has stated a total price of USD1.24b which included project management and owner-furnished equipment. This would imply that the actual cost is close to the USD600m price tag in Korean yards. We believe operating margins could be in the 12-13% level. Maintain BUY.