1Q09 results exceeded our estimates. Sembcorp Marine (SCM) released its 1Q09 results last Friday. Revenue rose 48.8% YoY (but declined 15.7% QoQ) to S$1.4b on the back of higher percentage of completion achieved in the rig building, offshore and conversion projects. Operating profit was S$134.6m, an improvement of 69.4% YoY (but a fall of 22.3% QoQ). This was in line with consensus estimates but exceeded our expectation.
Another quarter of strong margins - demonstrating SCM’s rigbuilding capabilities. SCM turned in better-than-expected operating profit margin for the third consecutive quarter. The operating profit margin of 9.9% was an improvement of 120bp YoY, and exceeded our 1Q09 estimates of 9.2%. We opine that this ascertains SCM’s capability and efficiency for rigbuilding as the first quarter is a seasonally slow quarter for higher-margin shiprepair and thus, the revenue profile for the first quarter is skewed towards rigbuilding. We expect subsequent quarters to record better profit margins than 1Q09. Therefore, we have raised our FY09F- 10F operating margins by 90-110bp.
We are increasing our order win assumptions. SCM has secured a US$247.3m (S$370m) order to complete topside integration of a semi-submersible drilling rig, with an option for a similar unit, for SeaDragon Offshore in early Apr 09. We expect the option to be translated into a new order win later this year. We also believe there will be more offshore fabrication wins, as Upstream reported that SCM’s wholly-owned subsidiary SMOE, have teamed up with Italian offshore EPCIC contractor, Saipem, to clinch a US$430m contract to build and install the Gajah Baru central processing platform in Indonesia. In addition, as one of the leading yards with good track record, the management expressed confidence to secure some new order wins from Petrobras. As such, we raise our FY09 and FY10 new order win assumptions of S$1.3b and S$2.0b to S$2.0b and S$3.0b respectively.
Our revenue estimates are up by 1% and 6% correspondingly. Upgrade from NEUTRAL to BUY. Consequently, our FY09-10 net profits increase by 11% and 19%. SCM has shown consistent improved results to deserve a rerating. Furthermore, as market sentiments improved (positive response on the sale of distressed assets from customers with weaker balance sheets, ie. PetroRig I, new order flow from Petrobras and confidence of credit market easing), we peg 3.5x P/B FY10, deriving a target price of S$3.06 (from S$2.07 previously).
Another quarter of strong margins - demonstrating SCM’s rigbuilding capabilities. SCM turned in better-than-expected operating profit margin for the third consecutive quarter. The operating profit margin of 9.9% was an improvement of 120bp YoY, and exceeded our 1Q09 estimates of 9.2%. We opine that this ascertains SCM’s capability and efficiency for rigbuilding as the first quarter is a seasonally slow quarter for higher-margin shiprepair and thus, the revenue profile for the first quarter is skewed towards rigbuilding. We expect subsequent quarters to record better profit margins than 1Q09. Therefore, we have raised our FY09F- 10F operating margins by 90-110bp.
We are increasing our order win assumptions. SCM has secured a US$247.3m (S$370m) order to complete topside integration of a semi-submersible drilling rig, with an option for a similar unit, for SeaDragon Offshore in early Apr 09. We expect the option to be translated into a new order win later this year. We also believe there will be more offshore fabrication wins, as Upstream reported that SCM’s wholly-owned subsidiary SMOE, have teamed up with Italian offshore EPCIC contractor, Saipem, to clinch a US$430m contract to build and install the Gajah Baru central processing platform in Indonesia. In addition, as one of the leading yards with good track record, the management expressed confidence to secure some new order wins from Petrobras. As such, we raise our FY09 and FY10 new order win assumptions of S$1.3b and S$2.0b to S$2.0b and S$3.0b respectively.
Our revenue estimates are up by 1% and 6% correspondingly. Upgrade from NEUTRAL to BUY. Consequently, our FY09-10 net profits increase by 11% and 19%. SCM has shown consistent improved results to deserve a rerating. Furthermore, as market sentiments improved (positive response on the sale of distressed assets from customers with weaker balance sheets, ie. PetroRig I, new order flow from Petrobras and confidence of credit market easing), we peg 3.5x P/B FY10, deriving a target price of S$3.06 (from S$2.07 previously).
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