Keppel and SMM benefit most from booming Mexican offshore demand

Korean and Chinese competition pose little threat.

According to DBS Vickers's industry flash note, the two Singapore rigbuilders Keppel and Sembcorp Marine (SMM) will be the "prime benificiaries" of the growing demand from the Mexican market, led by PEMEX's plan on expanding its offshore fleet for drilling along the Mexican coast. Asian-based competitors, specifically the Korean and Chinese rigbuilders, are not positioned as well as Singapore rigbuilders in taking advantage of this rising demand.

Here's more from DBS Vickers:

PEMEX embarks on fleet expansion plan. PEMEX has announced investment plans of US$25.3bn for 2013, of which US$20bn will be targeted at upstream activities with plans to add between eight and 12 offshore platforms to its fleet to drill and develop a series of prospects along the Mexican coast. This follows Mexico’s National Hydrocarbons Commission evaluation that Pemex should focus on the shallow water segment where it believes it has greater expertise and can produce oil more profitably.

Both Keppel and SMM will be the prime beneficiaries for Pemex’s plan to raise productivity along shallow waters given their proven track record and well acceptable designs. We do not expect head-to-head competition from Korean yards in this segment, which are targeting the harsh environment jack ups while Chinese yards’ lack track record, which remains as a stumbling block for them to gain orders from established players (with the exception of Seadrill).

Prefer Keppel. Keppel [BUY; TP S$13.00] remains our preferred pick among the Singapore rigbuilders for its lower earnings risk (with potential for upside surprises), solid execution track record, global yard network, and remains a key beneficiary to ride the tightening rig market. Maintain HOLD on SMM given the limited upside to our TP of S$5.00.