Keppel Corp/ Sembcorp Marine/ Sembcorp Industries

Keppel Corp/ Sembcorp Marine/ Sembcorp Industries: DB has a report out on the rigbuilding sector, favours Keppel Corp and Sembcorp Industries. With Chinese shipyards intensifying efforts in the Offshore sector mainly due to weak prospects in shipbuilding, attractive payment terms and lower prices are also luring some customers to China. However, takeaways from a recent offshore conference are that the Chinese are about five to ten years behind the established yards for high-spec offshore construction and that while pricing/payment terms are important, customers cited other crucial issues such as construction quality, on-time delivery, and cost control. Overall on the demand, the longer-term deepwater outlook is still highly positive, industry consultant Douglas-Westwood sees increased activity over the next five years in West Africa, the Gulf of Mexico and Brazil, based on the positive outlook cited from the offshore drillers. DB believe SMM’s margins may come under pressure in 2013-15 as the company executes drillship contracts in Brazil. SMM is new to drillship construction and its yard, which is currently under construction, may face potential 1) cost overruns, 2) skilled labour shortages, 3) construction delays, and 4) other initial teething issues, as new facilities typically face in Brazil. DB has the following calls: KepCorp: BUY, TP of $13.50; Sembcorp Marine: HOLD, TP of $4.75; Sembcorp Industries: BUY, TP of $6.35;