SMM

SMM: weak FY12 results to margin pressures, below expectations. Revenue was up 12% yoy to $4,430m, while net profit fell 28% yoy to $539m. Excl non-operating items (write back of tax over provision), net profit at $500m was down 29% yoy, below consensus est at $548m. Operating margin declined sharply to 10.8% from 14.1% in 3Q12, below market expectation of 15.0%. Mgt attributed the fall in margin to conservative profit recognition for new pdts incl its first drillship unit. Mgt maintained that 2013 OP margins could be 10-13%, below current mkt expectation of 13.2%. This is driven by the start of profit recognition for more new pdts, incl the well intervention semisub and harsh environment semisub. Deutsche notes, SMM is a new entrant in drillship construction, believes its upcoming yard in Brazil may face cost overruns, skilled labor shortages, construction delays and other initial teething issues. Investors may be further disappointed by the lower dividends (final 6cts + special 2cts) vs this time last yr (final 6cts + special 14cts). Total div for FY12 of 13 cts (2.7% yield) is almost half last yr’s total div of 25 cts. SMM has a net order book of $13.6b with completion and deliveries stretching into 2019. At $4.73 last close, the stock trades at 18.3x P/E, 4.0x P/B. Credit Suisse maintains at Neutral, cuts TP to $4.00 from $4.30. Deutsche keeps at Hold with TP $4.75. Prefers Keppel Corp (Buy, TP $13.50).