SembMarine

SembMarine (SMM): 2Q13 earnings of $125m (-12.7% y/y) below street estimates of $158m, due mainly to a lower recognition of projects, the number of projects that achieved initial recognition as well as the value and the design of rig building projects. 1H13 operating margin declined to 13.0% in 2Q13 from 13.7% in 1Q13, although SMM benefitted from a one-time gain on disposal. Excluding the one-off gain, underlying operating margin will be c.11.8%. 1H13 operating profit of $290m was 43% of consensus FY13 forecast, as reported operating margin declined to 13.0% in 2Q13 from 13.7% in 1Q13. Sembcorp Marine benefitted from a gain on disposal of PP&E of $13.7m in 2Q13 following the sale of a workshop acquired in 2007. Excluding the one-off gain, CS estimate underlying operating margin will be about 11.8%. Based on street's FY13 operating margin forecast of 12.4%, 2H13 margin is expected to be about 11.7%, driven by the start of profit recognition of new products, including the harsh environment semisub and well intervention semisub. SMM’s new integrated yard in Singapore is expected to commence operation in August 2013, but management does not expect a sharp rise in revenue in 4Q13 as there will be migration of work from existing yards. Its new yard in Brazil is expected to commence operations in 1Q14, and expected capex has been increased to US$600-700 mn (from US$550mn). The first two drillship units are on schedule, with first unit now 35% complete. Since 2013 beginning, the group has secured new orders worth S$3.5bn vs. our estimate of S$6.5bn for the year while net orderbook has increased to $14.4b from $12.7b at the end of 2012. Overall, management expects demand for new rigs to continue to remain high though it highlighted that competition from Chinese and Korean yards also remains intense. Order book secured ytd 3.5b with net orderbook of $14.4b. Brokers' recommendation: CS maintain NEUTRAL with TP of $4.00; Nomura maintain BUY with TP of $5.20; DB has a HOLD with TP of $4.10; Maybank KE has a BUY with TP of $5.20; CIMB has an OUTPERFORM with TP of $4.80;