Sembcorp Marine - Seventh drillship from Sete Brasil

Sembcorp Marine has just secured its seventh drillship contract from Sete Brasil worth US$806.4m. We believe delays faced by Brazilian yard, EAS, could lead to more rig contracts for Sembmarine from now till 2013, as a stop-gap measure by Petrobras.

No change to our EPS as the contract is within our S$10.2bn target for 2012. Also intact is our target price, still at 15x CY13 P/E, its 10-year average as well as the offshore & marine’s mid-cycle valuations. Maintain Neutral in view of earnings declines expected in FY13 and rich valuations, above its 10-year average.

What Happened
Sembmarine has secured its seventh drillship contract from Sete Brasil worth US$806.4m for delivery not later than 3Q16.

What We Think
We were not entirely surprised by this order as it is within the US$6bn orders that Sembmarine is bidding for (Figure 1). This award has lifted its YTD wins to S$9.8bn (Petrobras: S$7.4bn, non-Petrobras: S$2.4bn). We keep our order target of S$4.5bn for 2013.

We believe the drillship could be used by Sete Brasil to compensate for delivery delays by Brazilian yard, EAS. To recap, EAS was the first yard to be awarded seven drillship orders by Petrobras in 2011 in the national oil company’s tender of 28 rigs. However, its brand new facility has been suffering from teething problems and could miss its delivery targets of 2014-17.

We expect similar local-content requirements (about 55%) for this contract and see the potential for margin expansion in 2015 as Sembmarine is expected to concurrently execute at least three drillships in Brazil.

What You Should Do
We believe its share price will react positively to this news. However, valuations appear rich at 16x CY13 P/E, above its 10-year average of 15x. (Read Report)

Source : CIMB Research