20140212-Maybank_KERPL-Offshore___Marine_FY13_results_may_be_a_mixed_bag_12页_596kb

Offshore & Marine Sector Summary

Core Content Overview

This document provides an analysis of the offshore and marine sector, focusing on the performance and outlook of several key companies for FY13 and beyond. It highlights the mixed results expected during the reporting season and outlines investment themes and recommendations for the upcoming year.

Main Points and Key Information

Overall Sector Outlook

• The offshore & marine stocks are expected to deliver a mixed bag of results in the upcoming reporting season (4Q13/FY13).
• Sustained rig building momentum is seen as a positive trend.
• Cyclical rebound in OSV (Offshore Support Vessel) demand is anticipated.
• Lacklustre commercial shipbuilding orders for Chinese shipyards are a concern.

Investment Themes for 2014

1. Sustained Rig Building Momentum: Expected to continue driving growth.
2. Cyclical Rebound in OSV Demand: Seen as a positive catalyst for certain companies.
3. Weak Commercial Shipbuilding Orders for Chinese Shipyards: Likely to result in lower margins and profits.

Top Picks and Recommendations

• Sembcorp Marine: Expected to exceed consensus with a sequential increase in operating margin to 12.0% in 4Q13E. Anticipated to deliver a positive earnings surprise.
• Ezion: Likely to see a non-event in results, but share price could be boosted by lucrative liftboat contracts or favourable corporate developments.
• Mermaid Maritime: A top small-cap pick, with the potential for positive surprises due to operating leverage and higher utilisation.
• Nam Cheong: Expected to benefit from positive vessel sale momentum and a potential positive surprise from its 2015 build-to-stock programme.
• Vard Holdings: Seen as a buy, with a cyclical rebound in OSV demand and strong order wins.

Companies with Mixed Outlook

• Cosco Corp: Likely to post a YoY dip in net profit due to poor execution, weak shipbuilding prices, and rising costs.
• Yangzijiang Shipbuilding: Expected to see margin decline in 4Q13 and a slowdown in contract wins in FY14, due to glut in capacity and uncertain global demand.

Key Companies Analysis

Sembcorp Marine

• Forecast: FY13E net profit of SGD546m (+1% YoY), revenue of SGD5,488m (+24% YoY).
• Operating Margin: Expected to reach 12.0% in 4Q13E.
• Positive Surprise: Likely from the second drillship revenue recognition and Integrated New Yard Facility performance.
• Target Price: SGD5.14

Sembcorp Industries

• Forecast: FY13E net profit of SGD784m (+4% YoY), revenue of SGD10,783m (+6% YoY).
• Concerns: Power spread contraction in Singapore, impairments on UK Teesside operations, and execution risks.
• Target Price: SGD5.50

Ezion Holdings

• Forecast: FY13E net profit of USD154.0m, revenue of USD290.3m.
• Key Risks: Deployment delays, but the company has mitigated these through contract additions.
• Target Price: SGD3.00

Mermaid Maritime

• Forecast: FY13E net profit of USD12.3m, with potential upside from subsea segment utilisation.
• Investment Thesis: Evolving into an integrated oilfield services player with PTTEP as a key client.
• Target Price: SGD0.61

Swiber Holdings

• Forecast: FY13E net profit of USD44.1m, with a YoY dip in EPS due to margin pressures.
• Concerns: Execution risks in deepwater projects, earnings replacement from Kreuz sale.
• Target Price: SGD0.69

Nam Cheong

• Forecast: FY13E net profit of SGD50.5m, with record vessel sales in 3Q13.
• Key Event: 2015 build-to-stock programme announcement, which could be higher than expected.
• Target Price: SGD0.37

Vard Holdings

• Forecast: FY13E net profit of NOK371m, with a 7.3% EBITDA margin in 4Q13E.
• Positive Catalysts: Strong order wins, low unrecognised revenue, and cyclical rebound.
• Target Price: SGD1.04

Cosco Corp

• Forecast: FY13E net profit of SGD34.9m (-67% YoY), due to low-margin contracts and execution issues.
• Target Price: SGD0.65

Yangzijiang Shipbuilding

• Forecast: FY13E net profit of CNY2,932.8m, with margin decline expected in 4Q13.
• Concerns: Slower contract win momentum in FY14, and execution risks for offshore orders.
• Target Price: SGD1.05

Conclusion

• The analyst recommends Overweight on the offshore & marine sector, with Sembcorp Marine, Ezion, Mermaid, and Nam Cheong as top 2014 BUYs.
• Cosco and Yangzijiang are advised to be sold due to weak performance and uncertain outlook.
• The key factors influencing results include contract wins, utilisation rates, and margin performance, with positive surprises expected from certain companies.