Lim & Tan

Sembcorp Marine ($4.10, up 1.0 cent) reported net profi t grew
5.4% yoy $131.6 mln on revenue of $1,340.8 mln (+19.3% yoy),
largely due to higher contribution from the group&rsquo s rig building
sector with the delivery of 6 jack-up rigs in the 1H (another 8 in the
work in progress stage). Meanwhile, the fi xed platform segment
also registered strong double digit increase in revenue following 2
major project deliveries in 2Q14.
We note that the seemingly lacklustre headline bottomline growth
was attributed to foreign exchange differences and lower gain on
disposal of property, plant and equipment. Despite relatively fl attish
ship repair turnover, gross profi t margin still improved by 1.75%
point to 14.4% as the group achieved initial revenue recognition for
2 rigs building projects in 2Q14.
SMM has secured a total of $2.5 bln in new rig and offshore
conversion contracts since the start of 2014, which boosted its net
order book to $12.7 bln, with completion and deliveries stretching
into 2019. While the group&rsquo s four new dry docks at Tuas expect
to see full utilisation for vessels undergoing repair, upgrades &
conversion or building, the average revenue per ship remained low
in view of market conditions.
On the other hand, construction of Estaleiro Jurong Aracruz,
Sembcorp Marine&rsquo s wholly-owned shipyard in Brazil, is well on
track to commence initial operations in 2H14, and is scheduled for
completion in 2015. SMM has declared an interim dividend of 5.00
cents per share, the same amount as paid in last year.
Balance sheet is still robust with a net cash position of almost $0.9
bln. The stock is currently trading at inexpensive valuation of 14x
FY15 P/E, supported with yield of 3.7%. We reiterate our Buy rating
with share price catalysts including better-than-expected margins
expansion and stronger order wins.