Company Name: SEMBCORP MARINE LTD
| Research House: Citigroup | Price Call: BUY | Target Price: 5.40 |
Citigroup cuts SembMarine target to $5.40 from $6.10 after lowering its 2012-13 EPS forecasts by about 4%-11% on lower margin projections. But it raises its 2014 EPS forecast by about 6% on higher repair contributions and drillship revenue recognition.
It expects earnings to bottom sharply in 2012, followed by a strong 2013-14 rebound, with 21% FY12-14 CAGR. It keeps a Buy call.
“Street concerns over its prospects are overdone. SembMarine remains a viable play on the strength of the E&P cycle and its enlarged product mix has broadened its market opportunity. With the stock trading below mid-cycle valuations, we see the recent weakness as an enhanced buying opportunity.”
It adds, the go-ahead from Sete Brasil to build its first drillship entirely in Singapore, effectively reducing the local-content requirement, is a positive, helping to address the risk of 2013-14 margin decline; “the street has not fully digested this news.”
It is upbeat on the E&P cycle, expecting it to continue into 2013, underpinned by demand for a broad mix of products. The stock is flat at $4.39.
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