~20% stock return still possible in 2012: MER’s target price of S$6.00 implies another 14% stock return plus ~4% dividend yield. On top of that, SMM has announced special dividends in the past two years, and given its high FCF and low gearing, MER thinks there is a possibility of a special dividend in 2012 as well.

$486mn Semi-sub contract
On Tuesday, SMM announced that it has secured a contract to build a semi-submersible well intervention rig from an US contractor. The following is MER’s analysis on the latest contract win and orders outlook:

Lower price versus normal Semi-sub due to lack of drilling package: This rig would not have a drilling package, which substantially reduces the cost of the rig, and this explains the lower pricing of S$486m versus a ‘normal’ Semi-sub’s typical cost of ~S$650m. This would be the first rig of its kind to be built by SMM, with conventional top-hold drilling, subsea construction, decommissioning well intervention.

Price is good; margins could be even better than 15%: Given the lack of a drilling package in the rig, the cost will be significantly lower, in our view, and thus the margins should be even better than the healthy 13-15% that SMM makes on Semi-sub orders.

Robust start to 2012 order inflows: Orders for one Drillship, one Jack-up and one Semi-sub are already in for 2012. In comparison, KEP has announced just one US$150m repair contract.

Full-year 2012 could even exceed MER S$9bn estimate; more to come in 2Q12: MER expects large orders from Sete Brasil and Statoil in 1H12.

Five more Sete Brasil orders worth S$5bn should be placed in 2Q12: Sete Brasil, CEO, has said that all shipyard contracts for remaining 19 pre-salt tenders will be signed by April.

Four super-sized Jack-up orders from Statoil worth S$2.6bn should be placed in May ’12: The bidders have already been shortlisted and Statoil will announce the winner in May; MER expects it to be SMM, given the specific CJ80 design required.