O&M

O&M: Citi has sector report. Note that sector valuations are much closer to Aug 08 (pre-Lehman crisis) levels, and could provide a floor to share price in the near term. Expect rig demand to moderate in 2012-13 and have reduced FY12/13E order win forecasts by 14-25% to US$4.3-4.5b for KEP and SMM in light of this.

House prefer Keppel (Buy: TP $12.00) for its relative earnings resilience (outsized orderbook of $10b), but do see relatively more near-term order win catalysts for SembMarine, although SMM’s exposure in fixed platform should benefit fromNOC's E&P capex. KEP and SMM currently have eight jack-up options each, which, in the best case, could contribute $1.9-2.2b to new order wins between FY11-12.

Recommend investors to pay Attention to Options expiring in Sep/Oct, as the exercising or lapsing of four outstanding jack-up options (awarded by KEP) will be a key development to watch between now and their expiration in Sep/Oct 11. See this as a crucial indication of the road ahead as translation into firm orders will give increased confidence if the replacement cycle is still intact and provide insights into drillers’ view on E&P capex outlook and rig supply demand dynamics beyond 2011.