SMM

SMM: Held an analyst site tour for its new Tuas yard facility, which has been operational since 5 Aug. Mgt updated on the yard’s progress and reiterated the strategic rationale behind developing the yard. The 73ha yard is equipped with 4 VLCC dry docks and total capacity of 1.55m DWT, and quay space of more than 3.8km. It is expected to significantly enhance SMM’s capabilities by alleviating logistical issues faced at the older yard and contributing to reduced dependence on foreign labor on account of efficiency improvements. It will also free capacity for rig building activities at the old yards. Mgt previously guided for doubling of repair revenue from the current run-rate of $600-700m pa to $1.1-1.2b pa. With EBIT margins above 20%+ levels, this could provide a decent uplift to earnings next yr. Additionally, incremental capacity and faster turnarounds will likely result in higher conversions revenue as well. Nomura keeps at Buy with TP$5.20. CIMB keeps at Outperform with TP $4.80. Says stay invested on expectations of stronger 2H13 earnings, with margin upside from the execution of higher value contracts and repeat designs.