Sembcorp Marine's earnings predicted to jump 14% in 2013-2016

Thanks to robust rigbuilding contribution.

Nomura analysts estimate SMM’s operating earnings will grow at a ~14% CAGR in the 2013-16F period driven by solid margins in core rigbuilding and rising ship repair contribution.

"We are building in EBIT margins of 12.1% and 12.2% for 2014F and 2015F, respectively, a moderate improvement from 11.7% reported in 2013," Nomura said.

Here's more from Nomura:

For 2014-15F, we are building in an incremental ship repair revenue of SGD450/600mn in 2014/15F, which we estimate will contribute ~SGD90-120mn in operating earnings.

Concerns over Brazil orders impacting margins overdone, we think. The impact of lower margins on drillship orders will be mitigated by the rising share of ship repair in operating earnings, in our view.

Additionally, we highlight that the company has already taken some provisions on the first two drillships orders given the challenges of operating in Brazil.

These provisions, however, will be reversed in the event of withinbudget and on-time delivery of the first drillship, thus boosting margins.

We also highlight that SMM management remains confident of executing the Brazil drillship as per schedule.

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