SMM

SMM: weak 1Q12 results, below expectations. Net profit was $113m, -25% yoy. This was largely due to the surprisingly weak 12.8% Operating margin (OPM) in 1Q12 vs 20% in 1Q11, due to timing, value and initial lower margin from new design rigs. While a decline in margins was generally anticipated by the Street due to the lower priced contracts secured in FY10/11, the magnitude of decline was more than expected. Nevertheless, mgt sticks to its guidance of 15% FY12e OPM. YTD contract wins are $3b, with net order book of $7.4b and visibility until 2Q15. Mgt still seeing strong all-round new order enquiries, esp for deepwater rigs. Aims at $5-6b ex-Petrobras orders. On Petrobras, it notes that negotiations are at an advanced stage, with the finer details yet to be ironed out. Seeing some downward revision in TP by the Street, though ratings remain bullish. BOA-ML keeps at Buy with TP $6.01 from $6.15. Deutsche keeps at Buy, but lowers TP to $5.55 from $5.80. UOBK keeps at Buy, lowers TP to $5.80 from $6.10.