SMM

SMM: CIMB note that Upstream has reported that Noble Drilling is in pole position to secure a CJ-70 jack-up rig drilling chartering contract from Statoil, which could be announced soon. This could be followed by the award of rig construction to the Statoil-nominated yards of SMM and Daewoo Shipbuilding. The contract is said to be worth about US$600m for delivery in 2016. Maersk Drilling is also looking to invest in two more GustoMSC CJ-70 design jack-up rigs for delivery in 2016. The driller is exploring its options with SMM and Daewoo, after its option with KEP lapsed. KEP is at the moment building three CJ-70 rigs for Maersk, to be delivered in 2013-15. House believe SMM stands a high chance of winning in view of its track record for CJ-70. It had delivered one CJ-70 rig (West Elara) in 2011 and is building another unit (West Linus) for Seadrill, for delivery by end-2013. That said, Daewoo is new in the jack-up market and may sacrifice margins to break into this market. Recommend investors accumulate SMM. Believe its earnings growth of 10% (3-year CAGR), order wins and order-book expansion could continue to power its share price. Margins could also recover in 1Q13 with the lack of provisions for its rig accident in 4Q12.