Rig Builders: Daiwa maintains Positive rating on sector with Outperform ratings on KepCorp (TP $13.58), SembMarine (TP $6.05) and Sembcorp Industries (TP $5.80) House favors Keppel over SembMarine, given belief that the former’s ytd outperformance in order wins has improved its 2011-13 earnings outlook.
At current valuations, Keppel trades at undemanding 12.3xFY11E P/E and offers 27% upside potential to TP of $13.58. In house view, sustainability of current rig-order momentum will depend on semi-sub orders. Believe two key factors that will drive the return of new semi-sub orders are 1) utilisation rates, and 2) day rates. Orders for these rigs may come as soon as 4Q11, where house tip a recovery in utilisation rates and day rates that could in turn drive new order demand.
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