JPM
Atwood will not exercise options: According to a Bloomberg article, Atwood
Oceanics says that it will not exercise an option to build an additional semi-sub
with Sembcorp Marine amidst the weak global macroeconomic environment.
The rig operator currently has 2 semi-subs being constructed at SMM's Jurong
Shipyard slated for 1Q2011 and 2Q2012 delivery. SMM does not have anymore
options with other customers.
Factoring in no growth and order cancellation scenarios amidst tightening
credit: Petrobras’ delaying the announcement of its E&P expenditure for 2009-
2013 to Dec-08 from Sep-08 added further uncertainty to the already fragile
market. We examine possible scenarios factoring in no more future orders for
both Keppel Corp and SMM and further stress our assumptions by factoring in
different states of order cancellation on existing contracts assuming that rig
owners are unable to obtain further financing to continue construction causing
them to abandon their projects. In the event that existing orders are cancelled by
50% with no future orders, KEP's net profit would decline 31%/33% for
FY08/FY09 and SMM's would decline 40.7%/40.7% for FY08/FY09 based on
our estimates. SOTP valuations would drop to S$4.70 for KEP and S$1.93 for
SMM with CSG at 6x P/E.