Sembcorp Marine

Sembcorp Marine: OCBC maintains Buy with $5.64 TP. Note that Sembcorp Marine (SMM) is currently building a 82.5ha yard in Brazil to undertake drillship construction, amongst others. Should inflation in Brazil continue to be unrelenting, SMM may face further margin pressures from labour costs, especially since there is already a shortage of skilled labour in the country. Over the longer term, however, believe that SMM’s foray into the drillship business puts it in good stead to secure more drillship orders, diversifying its product range. In the shorter term, however, prefer to be more prudent on the group’s operating margin assumptions, and lower these to 12.1% and 12.3% for FY13F and FY14, respectively (2012: 12.5%). As such, SOTP-based fair value estimate slips from $5.84 to $5.64.