SembMar

SembMar: HSBC maintains O/w on grp with $6.05 TP. House positive on offshore spend despite global environment. Forecast US$75-80b average annual O&M spend in 2011-13 with roughly a qtr of this in E&P equipment capex. Existing order backlog for offshore rigs will add around 15% to current global fleet, inadequate in house view to support medium-term E&P plans of oil Co's.

A tight rig market is further exacerbated by a large ageing rig fleet under pressure of growing asset value divergence from newer premium rigs. Add that recent stock slide unwarranted. SMM has fallen 22% since 1 Aug vs STI down 11% due to mkt volatility, fears of a US recession and oil prices falling 12% to US$112/bbl.

Ytd orders are in line with expectation and mgt outlook on shallow and mid water E&P capex bullish. Note that while grp’s share price has a high correlation to oil prices, E&P projects in shallow and mid water are unlikely to slow unless crude falls on a sustained basis well below (unlikely) US$75/barrel. House forecasts and $6.05 TP are unchanged. Value grp on a 10-yr DCF estimate and order outlook does not factor in any new Petrobras contracts.