SMM

SMM: HSBC downgrades to Underweight, slashes TP to $3.80 (from $4.50). Notes the environment for new rig orders is weak, and SMM is undershooting its estimates for new orders. The house remains cautious about the offshore new build rig market due to a delivery concentration in the next couple of years comprising ~22% of the global rig fleet. Meanwhile, around a quarter of the new rigs have yet to be contracted and hence the industry will take time to digest this additional capacity. Further woes may come from a continuation of margin pressure – heavier cost structure of Brazil local content requirements , gradual ramp up of the new Tuas Singapore yard and aggressive rig pricing and financial terms from Chinese and Korean competition. HSBC lowers FY14-15 profit forecasts by 8-14%, by lowering annual order intake assumption to $4.5-6.4b from $6-6.6b, cutting EBITDA margins for rigbuilding and conversion by 75-100 bps and factoring lower associate contribution from Cosco.