While the outlook for order wins remains muted given the price of oil and global credit markets, we believe operationally SMM can withstand challenging market conditions given its current order book and strong balance sheet. In addition, SMM has a track record of riding through downturns and emerging stronger through the acquisition of new businesses which we believe will benefit the group in the medium term. We maintain our Buy rating with PO of S$2.00/share.

SMM has reported FY08 results with PATMI of S$429.9mn, up 78.4% YoY. The results were in line with BAS-ML estimates, with FY08 PATMI representing 99% of our forecasts. PATMI was affected by a one-off charge of S$44mn arising from the settlement of FX transactions relating to unauthorized trading in 2007. Operating margins increased to 9.9% from 9.1% in FY07. We have revised our estimates for FY09-10E by ~6% primarily for reduced contribution from Cosco.

To date, SMM has announced the variation of one order in relation to a Seadrill jackup (deferral of payment). The market remains concerned with SMM’s exposure to PetroMena. Management commented that of the three semi-subs currently under construction (to be completed progressively by Jan 2010), 50% of payments have been received and all three rigs have secured charter contracts.

SMM’s order book is at a record high of S$9.0bn with deliveries extending out to 2012. The group has secured new orders of S$5.7bn in FY08, up 4% YoY. Management commented that new rig contracts will be limited, however they were more optimistic with regards to potential new contracts from the FPSO and product platform markets. We are currently assuming new orders wins for SMM to be S$1.0bn per annum in 2009 and 2010.

We have revised our earnings estimate for FY09-10E by an average of 6%. While the outlook for order wins remains muted given the price of oil and global credit markets, we believe operationally SMM can withstand challenging market conditions due to its current order book and strong balance sheet. In addition, SMM has a track record of riding through downturns and emerging stronger through the acquisition of new businesses which we believe will benefit the group in the medium term. We maintain our Buy and PO of S$2.00/share.