Towards Financial Freedom
Seadrill Orders 2 More Jack-Up Rigs
Seadrill said it has ordered two more F&G JU2000E jack-up (JU) rigs from DSIC Offshore for USD230m each. We believe competition in the rig building space remains intense and may persist due to weakness in the commercial shipbuilding market. We maintain our Neutral view on the sector, but see opportunities to accumulate KEP and SMM on valuation grounds if their share prices fall further by 5% to 10% from current levels.
- Seadrill orders 2 more jack-up rigs from Dalian, bringing total to 6 YTD. The price of USD230m per rig is similar in value to the orders placed in Feb and Mar this year. In total, Seadrill has ordered six jack-up orders from Dalian Shipbuilding Industry Offshore (DSIC Offshore) so far in 2013 and has a eight such rigs currently under construction by DSIC Offshore, including the two units ordered in Nov 2010. All the rigs will be based on F&G JU2000E design. Seadrill also has two jack-up rigs of similar design under construction at Jurong Shipyard.
- Attractive financing drives orders to China. Rig owners are drawn to the attractive take-out financing in China, which is the reason why some orders are going to that country despite execution challenges. Apart from cheaper financing, some yards are also making progress in building jackup rigs. For instance, Dalian has made significant progress in winning orders from blue-chip customers like Seadrill. We see these yards giving Keppel Corp (KEP) and Sembcorp Marine (SMM) a run for their money.
- Shipbuilding orders pick-up may ease competition. Shipbuilding orders in China improved to 1.0m compensated gross tonnage (CGT) per month in 2013 (up to May) compared to 0.54m CGT per month in 2012 but still below the 1.5m CGT per month in 2004 to 2008. We believe a stronger pick-up in global shipbuilding orders, together with closure of inefficient yards in China, will ease the pressure on the offshore markets and consequently be positive for offshore shipyards.
- Maintain Neutral; accumulate if prices correct further. We maintain our Neutral rating on KEP and SMM given the limited upside to our TPs. However, we see an opportunity to accumulate on valuations should share prices pull back by another 5% to 10% from current levels.
Source: OSK
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