SembCorp Marine Ltd - More orders in the pipeline (CIMB)

OUTPERFORM Maintained

S$5.40 Target: S$6.80

Mkt.Cap: S$11,259m/US$9,370m

US$444m contract from Noble Corp

Noble Corp has exercised its option for two harsh-environment jack-up rigs with SMM worth US$444m ahead of its expiry in Dec 11, with the option for two more units. These two new rigs represent the fifth and sixth units that SMM will be building for Noble following the first four clinched in Dec 10 and Mar 11. Their delivery has been scheduled for 3Q and 4Q14 respectively. We remain positive on SMM’s order outlook for 2H11, keeping our S$5bn target for the year (YTD wins: S$2.6bn) on the back of steady demand for jack-up rigs, strong enquiries for production-related projects as well as potential semi-subs from Statoil. No change to our earnings estimates or target price of S$6.80, based on 18x CY12 P/E, at the upper end of its previous trading cycle. Stock catalysts are still expected from stronger-than-expected new orders, margins and upside from Petrobras wins.

The news

SMM announced this morning that Noble has exercised the option for two harshenvironment jack-up rigs for US$444m, ahead of its expiry date at end-Dec 11. Noble has options for another two similar jack-up rigs which should expire in early 2012. The latest two jack-up rigs are scheduled for delivery in 3Q and 4Q14 respectively. On completion, they are capable of operating in waters of 400ft and drilling depths of 30,000ft.

Comments

More options to be exercised. Although there has been a slight slowdown in jackup rig orders of late, we believe non-speculative orders should continue, especially from customers with existing options. We estimate SMM’s options at S$2bn which are likely to be exercised over the next six months.

Firm pricing and favourable terms. We believe pricing for jack-up rigs has stabilised with the latest two units secured at US$22m, about 1% above the prices of the third and fourth units (US$220m/each) secured in Mar 11 but 10% above the first two of US$200m in Dec 10. Payment terms also remain favourable with progressive milestones of 20:20:60.

S$2.6bn order wins YTD; 53% of our S$5bn target. We keep our order target as we remain positive on the outlook for 2H11 on the back of steady demand for jack-up rigs (more options to be exercised), strong enquiries for production-related projects (US$1bn platform which SOME is bidding with Saipem) as well as potential semi-subs from Statoil (estimated at US$1bn) where SMM is a frontrunner.