Excerpts from analyst's report


limsiewkhee_cimb4.14CIMB analyst: Lim Siew Khee (left)


It only takes one negative trigger

We believe the current share price has not priced in any negative triggers, such as delays in delivery, order cancellations and margin disappointment. Earnings deterioration could be worse than expected if order momentum continues to stall. Maintain Reduce. 



We recently tempered our order target for 2015 to S$1.2bn, benchmarking the global financial crisis level. We maintain our EPS and target price, still based on 11x CY16 P/E (-1 s.d from its 13-year trading average). De-rating catalysts could come from order cancellations, impairment of project costs in Brazil or deferrals of non-Brazilian projects.

Long wait for contracts to finalise

SMM recently entered into an exclusive letter of intent (LOI) with Dutch Heerema Offshore Services for the engineering and construction of a new semi-submersible crane vessel. We believe the final awarding of the contract could drag into 2H15 as negotiations could still be ongoing. Closing of new contracts is taking longer than expected on the back of volatile oil prices and depressed sentiment in the sector amidst capex cuts among oil majors. If awarded, this project could fetch SMM US$400m-500m. As with any new contract, we believe margins for the project could range between 8% and 10%, especially with fierce competition from the Korean and Chinese shipbuilders.

Riskier in Brazil

Stock price 
(10 Apr 2015)

$2.98

52-week range

$2.85 – $4.15

PE (ttm)

11.1

Estimated P/E (12/2015)

11.3

Market cap

S$6.2 billion

Price/book

2.1

Dividend yield
Bloomberg data

4.36%

12 months ago, investors were largely wary of SMM’s execution of its first drillship for Sete Brasil in Brazil. Although this has been mitigated by the fact that a substantial portion of work (>80%) is done in Singapore, the focus is now on whether SMM will be able to collect the final payment and complete the project amidst the complicated bribery allegations against Petrobras.

SMM recently announced that the consultant whom the company engaged for its Brazilian projects, Guilherme Esteves de Jesus (GDJ), was arrested on 27 March 2015. SMM could stop work by 2H15 if Sete Brasil continues to delay payments. The next question is whether SMM will be able to mobilise the drillship elsewhere and sell it to other operator.

Sell into strength

We advise investors to sell into strength given the recent spike in share price on the back of higher oil prices.

Share Prices

Counter NameLastChange
AEM Holdings3.730-
Avi-Tech Electronics0.275-
Best World1.780-0.010
Broadway Ind0.118-0.001
China Sunsine0.405-0.005
DISA0.003-
Food Empire0.6600.010
Fortress Minerals0.330-0.015
Geo Energy Res0.3650.010
Golden Energy0.775-
GSS Energy0.046-0.001
InnoTek0.470-0.005
ISDN Holdings0.400-0.005
ISOTeam0.1000.005
IX Biopharma0.1280.001
Jiutian Chemical0.075-0.001
KSH Holdings0.350-0.005
Leader Env0.0560.003
Medtecs Intl0.142-0.005
Meta Health0.0260.001
Nordic Group0.475-
Oxley Holdings0.1490.004
REX International0.230-0.005
Riverstone0.6300.005
Sinostar PEC0.190-0.001
Southern Alliance Mining0.380-0.025
Straco Corp.0.405-
Sunpower Group0.255-
The Trendlines0.094-
Totm Technologies0.105-0.005
UG Healthcare0.195-0.004
Uni-Asia Group0.805-0.010
Wilmar Intl4.1000.010
Yangzijiang Shipbldg1.4300.040

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