Sembcorp Marine

Sembcorp Marine: BoAML reinstates Neutral on SMM with TP $4.0 based on SOTP valuation. Softer operating margins are expected in 2014-16 (~10-11%) compared to that of 2012-13 (~10-13%), which is mainly the result of: increased revenue contribution from drillship orders placed by Sete Brasil and Transocean, which comman only high single-digit margins, vs 11-12% for jackups, (ii) potential cost overrun during the new Tuas and Brazil yards ramp-up process, (iii) potential extended down-cycle for ship repair business, which would see margin contraction on lower per-vessel revenue, (iv) new designs, which are still in the testing stage and have yet to be widely recognized by the industry However, there are fundamental factors driving confidence in the long term. As mentioned, the actual supply of jackup rigs are believed to be overstated and Chinese consolidation of the excess capacity in rig building industry reduces the challenge to Singapore rigbuilders. SMM now trades at 2.7x P/BV, higher than Keppel.