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报告摘要

Summary of Document Content

Core Content

The document discusses the current state and future outlook of the offshore and marine construction sector, particularly focusing on Singapore-based rigbuilders and their competitive position against Chinese and Korean yards. It highlights the ongoing uptrend in the offshore rigbuilding cycle, the potential for margin improvement, and the underperformance of Singapore rigbuilders despite positive fundamentals.

Main Views

Sector Outlook: The offshore and marine sector remains on an uptrend, with increased rig orders and higher rig prices expected.
Rigbuilders Performance: Keppel Corp and Sembcorp Marine (SMM) are both rated Buy, with SMM preferred due to its higher earnings growth, better revenue coverage, and relative underperformance.
Rig Pricing Trends: Despite competition, rig prices are expected to hold or rise over the next three years due to increased demand and limited capacity.
Margin Expectations: Operating margins for both Keppel and SMM are expected to trend upwards, contrary to the widely held belief of margin contraction.
Valuation: Both Keppel and SMM are currently undervalued compared to historical means, offering attractive investment opportunities.
Stock Underperformance: The underperformance of Singapore rigbuilders is attributed to margin concerns and overly pessimistic expectations, which the report suggests will moderate as the cycle progresses.

Key Information

Rigbuilders Overview

Keppel Corp:
- Current share price: SGD10.45
- Target price (TP): SGD12.50
- Implied P/B (FY13F/14F): 2.3x / 2.1x
- Implied PER (FY13F/14F): 15.4x / 13.4x
Sembcorp Marine:
- Current share price: SGD4.25
- Target price (TP): SGD5.40
- Implied P/B (FY13F/14F): 4.0x / 3.5x
- Implied PER (FY13F/14F): 18.5x / 15.6x

Offshore Cycle Momentum

The offshore drilling cycle is still strong, with increased demand in deepwater and ultra-deepwater regions.
Brazil, Gulf of Mexico, West and East Africa are key markets for deepwater activity.
High-specification jackups are in high demand, especially in the North Sea, with increasing dayrates and contract durations.
The surge in jackup orders this year reflects a positive shift in the offshore cycle.

Chinese Yards and Competition

Chinese yards are currently securing orders from speculators and lower-tier customers, not from major clients.
Their financing model is not sustainable due to weak cash flow and high gearing.
Chinese yards are unlikely to pose a significant threat to Singapore yards for at least 3 years, as they need to demonstrate execution and quality in their offshore projects.
Rig prices are unlikely to decline due to the increasing urgency of securing yard slots and the tightening of yard capacities.

Korean Yards and Market Focus

Korean yards are not directly competing with Singapore yards in the jackup market, but are focusing on other offshore segments.
They have a strong presence in the drillship and semisubmersible markets.
Korean yards are also involved in FPSO, FLNG, LNG carriers, and EPC projects, which are not areas of direct competition with Singapore yards.

Valuation Table Summary

Company	Mkt Cap (US$m)	Curr	Last Price	FYE	EPS Growth (%)	EV/EBITDA (X)	P/E (X)	P/B (X)	ROE (%)	Div Yield (%)
Keppel Corp	15,174	SGD	10.45	12	20.6 / (34.3) / 9.9	9.4 / 11.8 / 10.8	8.4 / 12.7 / 11.6	2.0 / 1.9 / 1.8	20.3 / 16.1 / 15.5	4.3 / 4.2 / 4.2
Sembcorp Marine	7,136	SGD	4.25	12	(29.5) / 13.2 / 18.8	12.0 / 9.3 / 9.4	16.5 / 14.6 / 12.2	3.5 / 3.2 / 2.8	21.3 / 23.1 / 24.0	2.6 / 3.5 / 3.5
Average (Singapore)					(4.5) / (10.6) / 14.4	10.7 / 10.5 / 9.4	12.4 / 13.6 / 11.9	2.7 / 2.6 / 2.3	20.8 / 19.6 / 19.8	3.4 / 3.9 / 3.9
Samsung Heavy	7,392	KRW	35,800	12	(14.3) / 16 / 9.0	1.4 / 1.3 / 1.2	15.1 / 16.1 / 15.0	1.4 / 1.4 / 1.4	7.2 / 6.5 / 6.6	1.2 / 1.3 / 1.3
Hyundai Heavy	13,832	KRW	203,500	12	10.8 / 29.1 / 6.6	0.8 / 0.8 / 0.8	7.4 / 8.7 / 9.1	1.2 / 1.3 / 1.3	3.5 / 4.6 / 4.9	1.1 / 1.2 / 1.3
Hyundai Mipo	2,370	KRW	132,500	12	(51.2) / 51 / 11.7	0.8 / 0.8 / 0.7	3.0 / 6.6 / 8.6	1.1 / 1.3 / 1.4	2.6 / 3.5 / 3.5	1.0 / 1.2 / 1.3
Daewoo Shipbldg	4,536	KRW	26,500	12	(81.6) / 146 / 4.0	1.1 / 1.0 / 1.0	3.0 / 6.6 / 8.6	1.1 / 1.3 / 1.4	2.6 / 3.5 / 3.5	1.0 / 1.2 / 1.3
Average (Korean)					(34.1) / 46.0 / 17.7	1.0 / 1.0 / 0.9	7.2 / 9.0 / 9.4	1.2 / 1.3 / 1.3	3.4 / 3.9 / 3.9

Chinese Yards and Orders

Chinese yards are securing jackup and semisub contracts, primarily from speculators and lower-tier customers.
Opportunity cost of delays is significant, with delays leading to lost revenue due to high charter rates.
Chinese yards are unlikely to pull down rig prices in the short term due to tightening yard capacities and rising demand.

Conclusion

The offshore and marine sector is on an upswing, with increased demand for rigs and rising rig prices.
Singapore rigbuilders (Keppel and SMM) are undervalued and have positive fundamentals.
Margin concerns are overblown, and execution and product mix are key to margin improvement.
Chinese yards are not a current threat and will need to demonstrate quality and execution before becoming a serious competitor.
Korean yards have diverse offshore segments and are not directly competing with Singapore yards in the jackup market.