Rush of orders before year-end

Sembmarine’s latest Letter of Intent from Prosafe for a semi-sub accommodation rig (estimatedat US$295m) has reinforcedour conviction that this cycle willbe dominated by a more diversified mix of vessels with higher contract values.

Non-Brazilian orders are catching up towards year-end, potentially lifting itsYTD ordersto about S$9.5bn. Maintain Outperform and EPS estimates. Our target price is still based on 18x CY13 P/E (+1SD from 5-year mean). Stronger-than-expected margins and high oil prices should continue to catalyse the stock, in our view.

What Happened

Sembmarine has signed an LOIwith a repeat customer, Norwegian-based Prosafe AS,for the construction of a semi-submersible accommodation rig. The rig will have the same design as Safe Boreas,being built atJurong Shipyard. Delivery is expected in 2Q14. In addition, Sembmarine has granted two options for further newbuilds, bringingto three thenumber ofoutstanding options it has with Prosafe. The two can be designed for either Norwegian Continental Shelf or worldwide operations.

What We Think

This LOI is one of two options granted by Sembmarine to Prosafe in Dec11, along with the

To stay competitive against the Koreans in the drilling rigmarket, Singapore yards have been broadeningtheir product mixesto cover harsh-environment products that command higher values. These rangefrom accommodation rigs (US$290m-300m) to heavy-duty and high-spec jack-ups (from US$450m) and FPSO topside fabrication and integration. The latest contracts from Petrobras amounted to US$674m forSMM and US$950m forKeppel.SafeBoreascontract at US$291.6m. We estimate that the value of thefinal contract could be in asimilar range. This could bring Sembmarine’s YTD ordersto S$9.5bn (Petrobras: S$6.9bn, non-Petrobras: S$2.7bn), in line with our S$10bn expectation.

What You Should Do

Stay invested as its order pipeline remains strong. SomeUS$6bn of orders could be awarded to Sembmarine from now till 2013, in our estimation.

[Trading Central] Sembcorp Marine: capped by a negative trend line.

Update on supports and resistances.

SembCorp Marine has acquired the entire share capital of wholly-owned subsidiary of SLP Engineering (SLP). SMM will pay about £2.5m for both shares and settlement of the intercompany loans of SLP. The deal will be completed only upon certain conditions being met. The NTA of SLP is about £0.7m. Following the acquisition, SMM will now have a footprint in the UK, providing synergistic support and reaching out to its North Sea clientele. Sembmarine SLP offers the opportunity for future growth in new business areas within the renewable energy sector as well as in the fabrication of minimum facilities platforms (MFP) for marginal oil and gas fields in the North Sea and Asia Pacific waters.