from CIMB

Recovery postponed to 2014

Although 3Q12 could be partially masked by a pick-up in 4Q12, the lower margin guidance of 10-13% in 2013, due to learning curve effects for new designs and conservative provision for the Brazilian contracts, could spark earnings cuts and share price downtrend in the near-term.

9M12 net profit came in below expectations at 60% of our and consensus FY12 forecasts from lower-than-expected revenue. Still, we expect a stronger 4Q12 as more projects will reach initial recognition, including the first drillship. We cut our FY12-14 EPS by 6-17%, on lower margins. Downgrade to Neutral, largely on the earnings cut. Our lower target price on a roll over to CY14 is based on mid-cycle O& M valuations of 15x P/E (from 18x).

Qoq margins up but hit by low revenue, forex losses

Although 3Q12 EBIT margin improved to 13.2% (2Q:12.8%), lower rig building revenue (-36% qoq, -52% yoy) and forex loss (S$15m) were the main culprits. Excluding the forex loss, EBIT margins would have been at 15.5%. Management still keeps its FY12 EBIT margin target at 14-15%, with more projects expected to achieve initial recognition in 4Q12 and settlement of a variation order.

10-13% long-term margins

Management has now turned more conservative on its long-term margin target, expecting 10-13% (previously 14-15%). In addition to the lower margins from Brazilian drillships, Sembmarine expects to see learning curve effects for its new product mix. Contracts based on the new designs such as semi-sub accommodation, well intervention rig, and semi-sub design CS60 clinched in 2012, command lower margins (12-13%) vs. repeated normal jack-up orders (15-16%). We believe margin expansion is likely only in 2014, with higher ship repair from new capacity and effects of repeated orders, if any.

More orders to come

Management expects to secure more contracts before end-12. Order book stood at S$12.1bn with YTD win of S$9.1bn. We estimate some US$6bn of orders could be awarded to Sembmarine from now till 2013, catalysing the share.

Big drop for Sembcorp Marine

Sembcorp Marine's Jurong Shipyard

BLOOMBERG

05 November 2012 10:42 GMT

The company’s quarterly net profit of $116 million was 48% down on the $223 milion earned in the same period of 2011 as revenue plunged 32% year on year to $892 million.

A 52% drop in rig-building turnover to $428 million acted as a major drag on the overall revenue figure, which was also hit by 13% lower shiprepair revenue of $153 million.

However, a lucrative conversion project on the Banyu Urip floating storage and offloading vessel helped to lift revenue from the offshore ship conversion division by 29% to $300 million, with six other projects also in various stages of construction and five units in the planning stage.

The weaker quarter also affected the nine-month result, with cumulative net profit down 29% at $371 million despite marginally higher revenue of $3.05 billion.

Sembcorp Marine now boasts a record order book of $12.1 billion, which has risen from $5.1 billion at the end of last year, with completion and deliveries extending to 2019.

However, it maintains a cautious outlook given “fragile and uncertain” prospects for the global economy while it faces keen competition for offshore fabrication contracts, despite buoyant exploration and production activity on the back of deep-water discoveries.

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SembCorp slips in third

SembCorp Marine’s third quarter profit has been sliced in half in half as revenue fell away.

SGX-quoted SembCorp booked a profit of SGD 115.5m ($94.3m) in the three months to the close of September, down from SGD 222.5m seen 12 months ago.

Revenue dropped by one third to SGD 892.4m as income from its rig building division plunged by over 50%.

SembCorp says the global economy remains fragile and uncertain but spending on offshore exploration and production is buoyant.

“Although the market environment for shipping remains challenging, there is continued demand for repair and life extension work for LNG carriers as well as repair and upgrading work for cruise ships and offshore vessels,” SembCorp said.

In the first three quarters of 2012 SembCorp has logged a profit of SGD 371m, down by almost one third on a year ago.

as compared with $884 million in 2011. The period saw one jack-up rig, the 3rd

jack-up from Noble, achieve initial percentage of completion revenue

recognition as compared with 2011 which saw the resumption of revenue

recognition for one semi-submersible unit, the

completion and delivery in 3Q 2011. On a nine month basis, turnover at $1,486

million in 2012 was 7% lower as compared with the same period in 2011.

The ship conversion/offshore sector in 3Q 2012 registered a 29% increase in

turnover to $300 million as compared with $232 million for the same period in

2011. The sector saw one project, the conversion of Songa Eclipse, upon itsFSO Banyu Urip,

achieving major revenue recognition with six other projects in varying stages of

construction and five units in the planning stage. On a 9M 2012 basis, turnover

was 26% higher at $1,065 million as compared with $847 million in 2011.

For the ship repair sector, turnover in 3Q 2012 was $153 million, 13% lower as

compared with $175 million for the corresponding period in 2011, attributable to

timing of ship repair projects. For 9M 2012, turnover was $474 million as

compared with $485 million for same period in 2011.

Group operating profit in 3Q 2012 at $126 million was 40% lower as compared

with $211 million for the same period in 2011. The third quarter of 2012

witnessed one unit of jack-up rig achieve initial recognition as compared with

the same period in 2011 which saw the resumption of revenue and margin

recognition of a semi-submersible rig, the

and delivery in 3Q 2011. At 9M 2012, operating profit was $406 million versus

$536 million in 2011.

On a pre-tax level, Group profit at $139 million in 3Q 2012 was 49% lower as

compared with $275 million for the same period in 2011. For 9M 2012, it was

$467 million as compared with $637 million in 2011.

Earnings per share for the Group were 17.81 cents with Return on equity at

21.1%.Songa Eclipse, upon its completion