O&M: Deutsche Bank feels that the new orders announced by Keppel and SembCorp Marine (SMM) are positive news. It would imply that both companies are looking to diversify their revenue streams. However, the research house feels that it will remain challenging to replace revenues from the rig market. In addition, it feels that SMM’s order is more of a special, one-off contract.
Notably, the contracts could present both companies with learning curve issues which may ultimately raise execution costs. It also questions how many of such contracts can be won again in the current environment.
The research house remains cautious on the offshore and marine industry in Singapore as prospects remain challenging. It notes that the offshore rig market is oversupplied and both Keppel and SMM are exposed to country-specific risks. As such, the research house maintains its Hold and Sell calls on Keppel (TP: $8.80) and SMM (TP: $2.50) respectively.
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