Keppel and Sembcorp Marine to veer toward record order wins this year

CIMB expects Keppel to clinch S$10.2bn and Sembmarine S$11.2bn.

Here's more from CIMB:

There is no doubt that Sembmarine’s and Keppel’s order wins will hit a record this year. We expect Keppel to clinch S$10.2bn and Sembmarine S$11.2bn. Maintain Overweight, with stronger-than-expected contract awards being the key catalyst. SCI is still our top pick for its valuation and resilient utilities business.

What Happened
Petrobras announced that it has come to agreement with Sete Brasil, Queiroz Galvao, Petroserv, Odfjell and Seadrill on 15-year chartering of 12 floating platforms to be built in Brazil with national content of 55-65%. These 12 rigs are part of the 21 units negotiated with Sete Brasil. Petrobras also confirmed that six semi-subs will be built by Keppel’s BrasFELS in Angra dos Reis and six drillships will be built by Sembmarine’s Jurong Aracruz. Delivery will start in 2016. Petrobras has evaluated the shipyards’ capacity including deadlines, local content ratios, suppliers of equipment packages, environment licensing and financials.

What We Think
We expect Brazilian orders to dominate sector newsflow in the coming weeks. The remaining five semi-subs/drillships each by Keppel and Sembmarine could be announced in a staggered fashion, split by rig operators.

Out of the six semi-subs by Keppel, three will be operated by Queiroz Galvao, two by Petroserv and one by Odebrecht. Three of Sembmarine’s drillships will be operated by Odfell and three by Seadrill. Petrobras could also award two FPSO topsides each to Keppel and Sembmarine, potentially above US$750m.

Although operating margins for Petrobras contracts are high single-digit, we see upside from efficiency as repeated units will be delivered by 2017. LT margins guided by Keppel are 10-12%. SMM is more bullish, guiding 14-15%.

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