SMM

SMM: 1Q14 net profit below estimates. Net profit increased 3.1% y/y to $122.5m, while revenue increased 27.2% to $1.3b, mainly from higher revenue recognition from rig building and offshore platform projects. Gross margins fell 2ppt to 12.7%. Contracts secured as at 2 May stands at $1.63b, while net orderbook stands at $12.9b with deliveries and completion stretching till 2019. Deutsche feels SMM may face a particularly risky 2014, any potential slip ups may meaningfully impact earnings, considering that the drillships account for 50% of order book. SMM indicated that the first hull should leave Singapore for Brazil in Feb’14, which was revised to April’14, with ETA in Brazil by Jun’14. Now SMM has ETA in Brazil as July’14, reason being it may be better for the hull to arrive after the World Cup. Deutsche underscores its concerns on the ever-tightening deadline. In addition, management is highlighting competition growing more intense, putting pressure on margins. Latest broker ratings Deutsche: Maintains Sell with TP $3.65 Maybank KE: Downgrades to Hold from Buy, with TP $4.36 Nomura: Maintains Buy with TP $4.80 Philip: Maintains Reduce with TP of $3.70