Sembcorp Marine

Sembcorp Marine (SMM): another set of disappointing 3Q13 results, mainly due to weaker margins. 3Q13 net profit rose 12% y/y to $129.7m, failing to keep pace with the 86% revenue jump to $1.66b, driven by higher revenue recognition for five new rig building projects reaching milestones. EBIT margins came in at 10% (2Q13:13.0%, 3Q12:14.1%), the weakest since 1Q09. Further, associates and interest income was also below expectation (due to start-up losses in India and worse than expected results at Cosco) MBKE reckons operating margins may improve based on average rig prices holding up, despite competition from Chinese and Korean yards. The house further adds premium yards like SMM with limited slots should hold some pricing power with tier-1 drillers. Deutsche Bank however, notes potential execution risks for SMM’s new yard in Brazil; expects margins to be pressured as it goes through teething issues such as cost overruns, skilled labour shortages, etc. SMM secured $3.9b of contracts YTD, growing the order book from $12.7b at end 2012 to $13.5b, with completion and deliveries extending till 2019. Latest broker ratings as follows: Maybank-KE maintains Buy with TP: $5.11 (from $5.20) Credit Suisse maintains Neutral with TP $4.00 Deutsche maintains Hold with TP $4.00 CLSA downgrades to Outperform from Buy, cuts TP to $4.50 (from $5.40) OCBC maintains Buy with TP $5.64 (From $5.68)