Raising profit estimates. We have raised our recurring net profit forecasts to S$516m (+6%) in FY09 and S$553m (+5%) in FY10. These are due to the lower order cancellation assumption of 6% (-6ppt), and the higher EBIT margin estimate of 10.6-10.8% (+0.8ppt).
S$1.1b y-t-d order wins. SMM’s S$1.1b y-t-d order win has outpaced its peers, and is on target to reach our S$3b assumption. This includes SMM’s latest S$160m FPSO contract win from MODEC. Coupled with more spaced out order book drawdown, SMM’s order book of S$7.9b is now bigger than Keppel Corp’s S$7.7b.
Better quality of project enquiries. SMM guides that the quality of enquiries for rigbuilding/offshore jobs has improved. We expect the increasing seriousness of the bids as incentives for equipment suppliers to potentially moderate their prices lower to move sales.
Raising target price. Our target price for SMM is raised to S$3.70, as we roll forward SOTP valuation metrics to FY10 EPS on better margin visibility. Maintain BUY.
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