Story: We are (i) raising SMM's earnings estimates for FY07 and FY08 by
0.5% and 9.0% on the back of higher earnings from Cosco Shipyard Group for
FY07 and FY08 and marginally raising our order win assumptions for FY07 to
S$5bn from S$4.8bn previously; (ii) introducing FY09 estimates; and (iii)
rolling forward our valuation to FY09 earnings.
Point: We believe that the cycle has more room to run and there is good
visibility to revenue – excluding shiprepair, 96%, 75% and 45% of revenue
in FY07, FY08 and FY09 respectively are already covered by confirmed
orders. We are forecasting new order wins of S$5bn in FY07, and S$3.8bn
each in FY08 and FY09.
Relevance: Our fair value is S$6.80 based on FY08 earnings, rising to
S$7.90 based on FY09 earnings. Given the strong visibility, our target
price is based on FY09 earnings. Maintain Buy with a raised target price
of S$7.90 based on 20x shiprepair earnings, 18x rigbuilding and conversion
earnings, 25x earnings from Cosco Shipyard Group and valuing SMM's 6.7%
stake in Cosco Corp using target price of S$6.10. Assuming that SMM
continues with its 75% dividend payout ratio, yield is still attractive at
3.1% for FY07 and 4.3% for FY08 in spite of the strong run up in share
price.
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