Price catalysts in 3Q09 We see the on-schedule receipts of the next milestone payments for Petroprod's jackup rig (before mid-July 2009), and Seadrill's semi-submersible rig (estimated by end 3Q09) as catalysts for the eventual removal of our S$1.1b order cancellation assumption. This could potentially add >5% to our fair value for SMM. SMM's confidence on contracts execution in 1H09 has also mitigated our concerns on margin pressure for variation orders, we have raised our EBIT margin assumptions for FY09 and FY10, to 9.8% and 9.9% respectively and expect a good set of 2Q09 results to be another price catalyst.
Expect new order wins in 2H09, our assumption unchanged at S$3b. We caution investors against expectations that any SMM's new order win is the start of an uptrend. We maintain our view that an uptrend in new order wins require : 1) An easing of credit crunch through a reduction in credit spread and equity funding requirement, and 2) A lowering of still high construction costs. These pre-conditions are currently not met yet.
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