Why analysts' woes about Singapore rigbuilders' Brazil venture are 'overblown'

Is there scope for margin expansion?

According to Maybank Kim Eng, Singapore players were inevitably compared to their Malaysian peers. A frequently raised observation was the premium valuations that Malaysian stocks command over Singapore plays. 

This is widely attributed to local players’ relative advantage in securing Petronas-related jobs.

Here's more from Maybank Kim Eng:

We highlighted that Singapore players, being more exposed to International spending has an equally positive outlook.

Valuations for our selected picks still look undemanding on a forward-looking basis and we believe there is potential for positive rerating as the offshore up cycle becomes more evident.

There was also a fair amount of concern on the impact of Chinese and Korean competition on Singapore rigbuilders’ margins.

Execution risk in Brazil was a key discussion point. While we acknowledge those risks, we argued (as per our 10 June 2013 report) that those concerns are overblown and there is scope for margin expansion.

While investors agree that our argument is plausible, many are waiting for clearer signals in subsequent quarters. In our opinion, Keppel’s recent 2Q13 O&M operating margin, which has been sustained at 14.1% level for two quarters now, suggests that margins may have passed its bottom.