By VINCENT WEE
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WITH both of the big offshore and marine-based conglomerates Keppel Corp and Sembcorp Marine having reported their second-quarter results, the focus must now move to the remaining half of the year.
Keppel expectedly had Q2 profits boosted by a $422.2 million exceptional gain from the sale of Singapore Petroleum Company as net profit more than doubled to $739.5 million. Less exceptionals, however, net profit saw a more sedate 6 per cent rise to $317.3 million. SembMarine, meanwhile, saw a 7.6 per cent increase in net profit to $138 million.
The bulk of Keppel's and obviously all of SembMarine's profits still comes from the offshore and marine sectors and it must be here that investors must look for clues to future performance.
In terms of current orders, both groups are practically neck and neck. Keppel reported a $7.7 billion net orderbook with deliveries stretching into 2012 while SembMarine has orders worth $7.9 billion as at August with completions and deliveries till early 2012.
In terms of new orders, however, SembMarine seems to have a slight advantage with new orders of $1.2 billion secured to-date since the end of last year. Keppel, in contrast, is lagging with just $345 million in contracts announced for the first two quarters. The second quarter, in particular, has been especially dry for the rig builders with Keppel announcing just $30 million of contracts. Keppel, on the other hand, announced on Tuesday another $85 million worth of contracts.
Most notably, however, neither of them has secured a single rig newbuilding contract since the start of the year, although SembMarine does have the edge with two semi-submersible jobs that it is taking over from another builder. This contributed significantly to its new order tally.
Analysts also seem slightly more upbeat on SembMarine. In maintaining her 'buy' call and raising target price to $3.74, DMG's Serene Lim said: 'We continue to like SembMarine and believe that order momentum in H209 may surprise on the upside. While the market seems excited about the plentiful orders from Petrobras, we believe investors have yet to factor in other potential non-Petrobras contracts in the offing.'
The report went on to add that industry checks show that SembMarine is currently bidding for jack-up newbuilds from national oil companies in Saudi Arabia, Vietnam and even China.
What is key to the two companies' fortunes must be the price of oil and the resultant ability and willingness of companies to commission newbuilds. This, in turn, will be dependant on the fortunes of the global economy which drives the demand for oil.
Investors know this and react accordingly. The share price of both Keppel and SembMarine are closely linked to the fluctuations of the oil price. For example, Keppel shot up 28 cents and SembMarine rose five cents yesterday amid an optimistic outlook for oil. Yet, only the day before, the shares were down as the view of the day on oil turned negative.
If the highly fluctuating oil price forecasts are anything to go by, the second half of the year can be expected to be no different for the rig builders.
Overall though, unless sure signs of economic recovery emerge and new orders come in, the second half looks weak for the two groups and the situation will get a little grimmer as the offshore and marine orderbook starts to wind down.
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