SembCorp Marine Ltd (SMM SP/ SCMN.SI, OUTPERFORM- Upgraded, S$3.28 - Target: S$4.58)

Quick takes - The coast is clear SembMarine has reached a settlement for US$208.7m with nine out of 11 banks involved in its earlier unauthorised forex transactions. This will be expensed in 4Q07. Our FY07 core earnings estimate has been cut by 45%. We believe the forex overhang should be lifted given that 80% of the amount has been expensed off. A strong net order book of S$6bn and positive order flow should continue to drive earnings till 2010. Our target price, still based on blended valuations, has been reduced from S$5.00 to S$4.58 as we lower our P/E target from 22x to 18x to reflect a mid-cycle valuation for the O&M industry and lower investor risk appetite. However, with the settlement of the forex debacle and restoration of investors' confidence, as well as upside potential of 39%, we upgrade the stock from Neutral to Outperform.