What can the Petrobras drillship order do for Sembcorp Marine?

It will obviously provide SMM the initial impetus to establish its foothold in the local Brazilian market - but this is just one benefit.

Here’s more from DBS:

Drillship breakthrough with Petrobras. SMM has secured a contract from Guarapari Drilling BV, Netherlands, a subsidiary of Sete Brasil Participacoes S.A., for the design and construction of a drillship worth US $792.5m. The unit is scheduled for delivery no later than 2Q 2015.

Major breakthrough on several fronts. We believe this contract is significant on several fronts: 1) first order for SMM’s greenfield Brazilian yard, which will provide SMM the initial impetus to establish its foothold in the local Brazilian market; 2) further signs of progress being made on negotiations between Petrobras and the drilling contractors/yards; 3) maiden drillship order for the group, representing its penetration into the newbuild drillship market traditionally dominated by the Korean yards; and 4) testament of the drillship’s high-spec capabilities and innovative design.

Boosting orderbook; FY12F order wins raised to S$6bn. This is SMM’s first order for FY12 and boosts its orderbook to c. S$5.9bn, extending earnings visibility with book-to-bill ratio of 1.4x (prev 1.1x). On the back of a healthy order outlook, we raise our FY12F order wins assumption to S$6bn (prev S$4bn). Hence, FY13F is raised 4%, partially offset by our conservative 6% EBIT margin on the Petrobras rig order (vs. group FY12 EBIT margins of c. 16%) given that this will be SMM’s maiden foray in Brazil using a new drillship design.

Maintain BUY, TP lifted to S$5.75. We raise our SOTP-based TP for SMM to S $5.75, as we roll forward our valuation to blended FY12/13F PE on improved earnings visibility (prev 13x FY12F PE), while raising the valuation peg to 16x (+0.5SD) on potential re-rating catalysts from further Petrobras contracts and the return of semisubmersible orders. Maintain BUY.

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