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Tuesday, June 11, 2013

Rig order upswing benefits Singapore yards - Maybank


An uptrend in rig order cycle will help Singapore's rig builders shrug off competition from peers in China and South Korea, and boost their share prices, said Maybank Kim Eng in a research note.

Yeak Chee Keong, a Maybank analyst, preferred Sembcorp Marine, which underperformed cross-town rival Keppel Corp but boasts a better earnings growth profile.

“Rig ordering cycle is still on an uptrend,” Yeak wrote, “The surprise upside in jackup orders in the first half of the year would only serve to boost the impending cycle.”

He expects two Singapore yards to secure total orders of $11 billion in fiscal year 2013, up from $8 billion last year, excluding those related to Petroleo Brasileiro SA (Petrobras).

Competition from Chinese yards, which offer price discounts and attractive financing terms, is unlikely to pose a serious threat to the Singapore yards for the time being as most top drilling companies remain sceptical on whether the Chinese can deliver quality products on time, he added.

Keppel shares were trading at $10.56, and have fallen 1.5% year to date, while Sembcorp Marine have fallen 7% so far this year, against a 1.4% rise in Singapore's benchmark Straits Times Index .

Yeak trimmed the target price on Keppel to $12.50 from $12.85, but kept the target price for Sembcorp Marine unchanged at $5.40.

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