We maintain our 4 (Underperform) rating on the stock, and DCF-based six-month target price of S$2.06, as we believe that expectations in the market are too high and the stock is vulnerable to an FY11 earnings disappointment. We think the first catalysts would be two Petrobras orders: one for an eighthull winner-takes-all FPSO order and the other for six-to-eight semi-submersibles, both expected to be placed by the end of 4Q09. This catalyst may be a significant positive or negative, depending on if SembMarine wins any of these contracts.
SembMarine’s share price is up by 127.4% since 9 March 2009, compared with a 78.3% rise in the FSSTI and a 44.6% increase in crude-oil prices over the same period. While economic and market conditions have improved since 9 March 2009, we think that expectations in the market are too high for continued record-level earnings at SembMarine, and that the stock is vulnerable to an earnings disappointment.
Our key thesis is that we believe new rig orders will not come in fast enough and in large enough numbers to prevent idle capacity from having a significant negative effect on earnings in 2011. So how did we come to the conclusion that SembMarine’s revenue and earnings would be much worse than the market expects?
We continue to use a DCF analysis to derive our six-month target price, which is unchanged, at S$2.06. We use a WACC of 11.9% and a terminal growth rate of 1.2%.
Sponsored Links
No comments:
Post a Comment