Brokers' Take

Sembcorp Marine | Buy

Oct 8 close: S$3.62

Target price: S$4.18

OCBC Investment Research, Oct 8

Sembcorp Marine's (SMM) share price has fallen by about 10 per cent since early September, with about half of this drop in the last five trading days. We believe that this is partly due to weaker oil prices of late, as well as company-specific factors such as worries over execution risks for its new drillship.

According to our checks, the first drillship has finally left for Brazil, and SMM has reiterated that the unit is still on track for June 2015 delivery. We had been forecasting operating margins of 11.7 per cent for FY14 and 12.6 per cent for FY15 (H1 FY14: 11.3 per cent). To be more conservative, we lower our FY15 margin assumption to 11.9 per cent. With this, we see limited downside risks to margins. Though our fair value estimate is correspondingly lowered from S$4.36 to S$4.18, we see a 20.5 per cent upside (this includes a ~4 per cent dividend yield) on the …