Rig Order Upswing Benefits Singapore Yards

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 Ltd, which underperformed cross-town rival Keppel Corp Ltd 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 S$11 billion ($8.83 billion) in fiscal year 2013, up from S$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 S$10.56, and have fallen 1.5 percent year to date, while Sembcorp Marine have fallen 7 percent so far this year, against a 1.4 percent rise in Singapore's benchmark Straits Times Index.

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

(c) Reuters, 2013.

PHOTO: Jurong Shipyard, a fully owned subsidiary of Sembcorp Marine. Jurong Shipyard operates four graving docks with a total capacity of 1,100,000 dwt and berthing quays stretching over a total length of 2,728 metres with a maximum draft of 9 metres.