SMM

SMM: Deutsche notes Vard’s recent profit warning highlights risks in Brazil, given the challenging operating conditions involving high personnel turnover and very high pressure in the subcontracting market. While SMM’s new order prospects remain healthy, the house believes SMM’s margins may come under pressure in 2013-15e, as the group executes the large drillship contracts in Brazil. SMM is new to drillship construction and would need to move up the learning curve. Also believes its yard in Brazil, which is still under construction, may face potential cost overruns, skilled labor shortages construction delays and other initial teething issues. Keeps at Hold with TP $4.20.