SembMarine – DBS
Strong 2Q, in line with our expectations
2Q07 + 48% yoy, 1H07 +62% yoy. Excluding S$176m revenue from Kristiansand rig in 2Q06, Group revenue rose 22% yoy to S$1051.6m due to stronger performances from shiprepair, conversion and rig building. Despite the lower number of vessels repaired in 2Q07 of 67 vs 78 in 2Q06, the average repair value rose to S$2.74m from S$1.63m as more higher value added jobs are being taken on. Tankers now account for 43% of shiprepair revenue versus 25% last year. Unsurprisingly, shipbuilding revenue declined 58% yoy as shipbuilding activities are scaled down to channel resources to rig building and conversion. EBIT margins improved 2.2pp yoy to 7.7%. QoQ margins can be volatile and this was seen though a small drop of 0.8ppt. Net profit, excluding exceptional S$10.1m gain from sale of Kristiansand rig in 2Q06, rose 81% yoy to S$86m.
Shiprepair remains strong. Dock space is fully utilized with forward jobs of S$200m already confirmed. One jack up has recently been completed with another scheduled for completion next week. YTD order wins now amount to S$4.5bn and we expect it to hit S$5bn for this year. Current order book is S$8.3bn, providing good visibility to earnings. While the momentum for jackup orders could slow, we expect a pick up in orders for semis and floating production systems especially FPSOs. SMM is well placed to leverage on this through its acquisition of SMOE last year
Maintain Buy, TP S$7.90. No change to our estimates and target price at this stage. Our assumptions for margins are conservative – we are looking at EBIT margins of 7.7% in FY07 (1H07A : 7.3%), 8% in FY08 and 8.3% in FY09 – and these could also surprise on the upside in 3Q and 4Q. In addition, we believe that there could be some corporate activity regarding their 35% stake in Maua Jurong, Brazil as Petrobras’ contracts are increasingly requiring a high local content. We believe that the cycle has more room to run and there is good visibility to revenue – excluding shiprepair, 96%, 75% and 45% of revenue in FY07, FY08 and FY09 respectively are already covered by confirmed orders. SMM has declared a dividend of 5cts and a 2 for 5 bonus issue.