Not so happy new year: Margins seen to shrink for O&M firms in FY 12-13

EBIT margins for Sembcorp Marine and Keppel Corp are seen to drop from 21% in FY11 to 15% next year.

According to CIMB, are penciled in for next year, O&M companies will likely see their profit margins deteriorate due to the completion of high-margin jobs secured before 2008 by end-2011 and the rise of financing costs as lending spreads widen.

The research agency said the stiff competition for few new projects and the lower margins Petrobras orders are expected to yield will shrink the firms’ margins for FY 12-13.

Petrobras orders typically fetch single-digit EBIT margins.

CIMB said the recent bounce in O&M stocks provides a good chance for investors to get out as the market has priced in Petrobras contracts for Singapore rig builders.

Since the news of Petrobras receiving drillship and semi-submersible bids from drillers and yards a week ago, Keppel Corp. and Sembcorp Marine have outperformed the index by about 10%.

The research firm noted that as new orders dry up, drillers have been observed to “[play] the waiting game as a ‘full-blown global recession hangs over the sector.

There have been no major rig orders in the past two months other than Ensco’s exercise of a jack-up option and German steel trader Safin’s decision to refurbish a jack-up with Keppel Corp.

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