SembCorp

1Q07: Net profit up 81% yoy

SembCorp Marine (SMM SP) posted a 1Q07 net profit of S$73.7m up 81% yoy. Excluding a tax-writeback of S$5.0m in 1Q07 and an asset impairment charge of S$6.1m in 1Q06, net profit increase was 46% yoy. 1Q07 turnover was S$953.7m, up 91% yoy, boosted by higher turnover in shiprepair (+25%), ship conversion & offshore (+161%) and rig building (+167%). However, shipbuilding’s turnover fell by 43%. Shiprepair turnover benefited from higher average repair value per vessel of S$2.5m in 1Q07 from S$1.61m in 1Q06 although the no of vessels repaired fell by 20% to 65 vessels. Shipbuilding turnover declined as resources have been channeled to growing the rig building and offshore production sectors. Ship conversion saw the completion of one FSO conversion while seven projects are still ongoing. In rig building, only one jack-up achieved initial 20% recognition in 1Q07 as compared with four jack-ups in 4Q06, but higher jack-up building turnover (+46% to 251.1m) was achieved from ongoing jack-up projects. 10 jackups are in the work-in-progress stages with six units in the planning and engineering stages. Turnover from semi building rose substantially by more than ten-fold to S$302.8m. Three semis are in the work-in-progress stages with three units in the planning and engineering stages. Gross profit margin of 8.4%, although lower than 1Q06’s 13.2%, is comparable to 4Q06’s 8.8%. The marginally higher margin in 4Q06 was due to initiation recognition of one semi-submersible rig (semi) and four jack-up rigs as compared with 1 semi and one jack-up in 1Q07.

SMM’s O&M contract flow surged with the clinching of S$2.86b worth of new contracts ytd. Contract flow has rebounded following a lull in 2Q06 and 3Q06. Last night, SMM announced that its subsidiary Jurong Shipyard had secured a US$535m (S$814m) semi contract from SeaDrill Ltd to build a 6th generation ultra-deepwater semi on a turnkey basis. This will be the third semi Jurong Shipyard is building for SeaDrill, following the West Sirius and West Taurus, which are of similar design currently under construction at the yard. Following the latest contract, SMM’s outstanding orderbook has been raised to S$7.5b from S$5.5b as of end-06. Semi, jack-up, ship conversion, offshore platforms and shipbuilding contracts account for S$3.5b, S$2.5b, S$787m, S$581m and S$65m of SMM’s orderbook respectively.

We maintain our earnings forecasts and target price of S$4.25 (18x FY08 earnings or PEG of 0.8x) for the time being. We remain positive on SMM and maintain our BUY recommendation.