Sembcorp Marine - New contract secured; healthy long term prospects

Sembcorp Marine, through subsidiary SMOE, has announced that together with PT Saipem, they have secured a contract worth US$430m from Pre-mier Oil Natuna Sea B.V, for the engineering and construction of a Central Processing Platform, a Wellhead Platform and a 16 inch diameter by 3 km export subsea gas pipeline, to be installed in about 80 meters water depth in the Gajah Baru Field, offshore Indonesia. SMOE's portion of the contract is worth about S$230 mn and entails part procurement, construction engineering, construction, hook-up and commissioning of the two platforms, while PT Saipem Indonesia's scope of work covers engineering design, procurement, transportation and installation of the platforms and the subsea pipeline.

With this S$230m contract win, SMM's total new orders YTD is about S $590m. Our 2009-11E new order assumptions are S$1.6bn, S$2.3bn and S $3.2bn, respectively. The contract win indicates that (1) offshore activity and new orders are still progressing despite the current difficult credit conditions and volatile oil prices, (2) SMM is well positioned to capture new contracts with its operational track record and branding, and (3) not only is the group exposed to exploration related assets, but the production side is also seeing healthy demand with it typically following the discovery of oil/gas reservoirs. Maintain Buy.

Swiber Holdings - Waning order backlog

Swiber's 1Q09 core net profit of US$7.1m was 26% below our estimate and 12% below consensus due to higher-than-expected depreciation charges from a bigger fleet. Operations were stable with higher revenue and stronger qoq margins, thanks to vessels which came in in 1Q09. Order book was US$515m with only US$70m of new contracts secured in 1Q09 (1Q08: US$490m). We cut our earnings estimates by 13-14% for FY09-11, to reflect higher depreciation and lower interest income. Maintain Underperform, albeit with a higher target price of S$0.52 (from S$0.47), now based on 7x CY10 core P/E (previously 5x), in line with its Singapore peers and receding market risks. We are likely to re-rate the stock only if order visibility improves.

Core FY09 revenue S$1.05bn — FY09 topline revenue grew 4%yoy (4Q09: S$246m, +9%qoq) with higher contributions from line maintenance, FMP, and a one-off maintenance project offsetting weakness in airframe/component overhaul. Expenses rose by 3%yoy on higher overheads and subcontract costs despite 2% fall in staff and materials costs. Operating profit rose by 9%yoy to S$113m, as operating margin improved by 60bps to 10.8%.

Associates/JVs +3.5%yoy — 4Q09 contribution from AJVs rose 29%yoy to S$48m, or 62% of the group’s PBT (4Q08: 58%). For FY09, AJVs contributed S$173m (+9.6%yoy) on robust growth from engine overhaul (S$108m, +20%yoy) while other JVs registered a dip in profit (S$65m, - 4%yoy). External work (non-SIA) accounted for about 70% of revenue from AJVs.

FY09 total DPS S$0.16 (FY08: S$0.20) — Lower dividend of S$0.16 equates to 66% payout ratio (FY08: 85%), and reflected a more prudent and conservative stance given weak outlook for FY09/10, with possibility of further deterioration. As of Mar-09, the group had net cash of S$373m or S$0.35/shr.

Key initiatives against challenging environment — [a] Expansion of fleet under FMP (Mar-09: 175 vs Mar-08: 109); [b] Geographical expansion (Philippines, Vietnam, LA); [c] Securing “first-mover” advantage with new products (eg. First to maintain A380, cabin modifications for A340, B747- 400 VVIP); [d] Cost controls including hiring freeze since mid-08, voluntary no-pay leave scheme, management wage freeze from May-09, and release of surplus contract staff.

SingPost announced this morning that it will be acquiring 30% of USA-incorporated Postea Inc via a cash payment of US$9.4m and a non-cash consideration comprising intellectual property (IP) rights for its SAM, SAM PLUS, POST21 and vPOST systems to Postea valued at US$24.3m. SingPost will leverage Postea's expertise and technology to further develop its IP. While we are positive on this development, we are keeping our earnings estimates for now as it would take time to develop technology and enhance IP. We remain Neutral on the stock given limited share-price upside. Our DDM-derived target price (discount rate 8.5%) is intact at S$0.80.