Annualized 1H2009 earnings of S$258mn was 5% ahead of our expectation. The difference was largely due to the better-than-expected operating margin, which came in at 10.5% in 1H, vs. GS full-year forecast of 8.8%, reflecting strong operating efficiencies, especially with repeat rig orders. There were two negatives, though: 1) associate earnings were weaker, mainly due to Cosco Shipyard Group, and 2) there was a S$8m write-off on its small Petroprod investment, which recently went into liquidation. Separately, Sembcorp Marine won a S$160mn FPSO conversion contract on August 3, including previous wins; ytd new orders are now at S$1.1bn. This is helping to replenish order backlog, which has now fallen to S$7.9bn, vs. the previous quarter’s S$8.4bn. Sembcorp Marine remains positive on demand long term, though near-term conditions could be challenging. A S$0.05 interim dividend was announced.
We are raising our 2009E-2011E EPS by 4%, 3% and 6%, respectively, mainly due to stronger operating margins, and higher-than-expected new orders; we previously forecast US$500mn. We are rolling over our 12-m P/B-based price target to 2010, increasing our price target to S$1.15 (vs. previous S$1). We remain cautious on the medium-term outlook for offshore and marine prospects, especially considering the sluggish E&P spending globally and significant rig supply oncoming. Retain Sell. Key risk: Higher-than-expected oil prices, stronger new order momentum.
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