2Q13 results below expectations but for explainable reasons, maintain Buy. 2Q13 revenue came in at SGD1.1b (-8% YoY, +7% QoQ), with PATMI of SGD125m (-13% YoY, +5% QoQ). This was lower than our preview figure of SGD162m, but can be explained by the lower revenue recognised which is entirely a timing issue (we forecasted SGD1.4b in revenue). More importantly, op. margin of 13.0% was within our expected range of 12-13%, although it was bolstered by SGD13.7m one-off gain from property sale. 1H13 PATMI makes up 40% of our previous FY13F forecast and we expect earnings to be back-end loaded. An interim dividend of 5 cts/sh was declared, consistent with past records. Maintain Buy, SOTP-based TP unchanged at SGD5.20.

Keeping our operating margin target intact. We keep FY13F headline op. margin forecast of 12.9% intact (1H13: 13.3%). Operating margin would be at 11.8% for 2Q13 and 12.7% for 1H13 if we strip out the one-off property gain, which is still in line with our full year forecast. We view quarterly fluctuations as admissible. We believe that efficiency gains and more ship repair jobs could sustain our FY13F margin expectation.

Strong focus on enhancing efficiency. The key focus of the analyst brief was on SMM’s efficiency enhancement plans. Management spent the bulk of the briefing duration to explain the design concept, work flow, and manpower strategies for the Integrated Tuas Yard and the new Brazil yard. It also explained its construction strategy for the Brazil drillships. We came away more positive of its well thought-out plans and believe that these could alleviate the risks in Brazil and be an added support to sustain overall margins.

Order wins on track. Orderbook momentum remains on track to meet our full-year forecast of SGD5.2b with YTD order win of SGD3.5b. Net orderbook breached another record high at SGD14.4b.

Maintain Buy, TP SGD5.20. We adjust recognition schedule and lower associate contribution from Cosco. Net profit for FY13F is lowered by 5% but FY14F is raised by 3%. We continue to like SMM for its exposure to a strong rigbuilding cycle.

Source: Maybank Kim Eng Research - 2 Aug 2013