3Q11 results within expectations. Sembcorp Marine (SMM) reported a 16.8% YoY rise in revenue to S$1.3b but saw a 24.8% fall in net profit to S$222.5m in 3Q11. Results were in line with expectations, with 9M11 net profit accounting for 75.9% of our full year estimate. As expected, turnover was bumped up by the resumption of recognition of the Songa Eclipse semi-submersible rig (previously only 30% recognized) which was delivered in the last quarter, and we estimate this contributed about S$540m to 3Q top-line. Offshore and conversion continued its strong showing YTD, with revenue from this segment increasing 53.8% YoY to S$232m in the quarter.
Watch the deepwater space. Management revealed that there have been more enquiries for semi-submersible rigs compared to the previous quarter. Recent news flow also suggests that tightening in the deepwater space is gaining momentum, with more units securing charters recently at favourable day rates. In particular, drilling in the Gulf of Mexico has returned to nearnormal levels with 23 rigs currently drilling wells in water depth greater than 3000 ft . This is the same number compared to two years ago. Although the momentum for newbuild jack-ups has slowed down, SMM said it is still receiving enquiries for such units.
YTD new order wins exceeds FY10. SMM has a net order book of S$5.2b with deliveries stretching till 2Q14. Excluding ship repair contracts, the group has secured S$3.2b worth of new orders YTD, exceeding its S$3.04b new order win in FY10. We keep our full year estimate of S$4.5b while recognizing that the swing factor would come from potential semisubmersible wins. For FY12, SMM is hopeful of clinching work involving jack-ups, semi-submersibles, fixed platforms and drillships. Meanwhile, there are eight rig options outstanding, and we estimate their potential value to be around US$1.6b.
Maintain BUY. Besides an estimated final dividend of S$0.06/share that may be declared in its 4Q11 results, we also expect SMM to pay out a special dividend whose quantum is dependent on potential M&A opportunities. Meanwhile, we have adjusted our earnings estimates to take into account a one-off tax refund that SMM will obtain due to the settlement of its previous disputed foreign exchange transactions. After updating the market value of the group's stake in Cosco Corp and at the same time rolling forward our valuation to FY12F earnings, our SOTP-based fair value estimate falls slightly from S$5.70 to S$5.63. Maintain BUY.
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