Here's another proof that Sembcorp Marine is on a roll

Second contract win a week.

According to Barclays Research, Sembcorp Marine's newest contract win, its second in a week, shows that it and other Singapore yards are still the go-to choice for building offshore drilling rigs and that this sustained demand will help the company turnaround its margin by 4Q this year at the earliest extending through to 2014.

Here's the complete analysis from Barclays:

Following a strong start to the year by the Chinese yards, there were concerns that the Singapore yards were losing market share to China. However, recent months have proved otherwise, with Singapore yards winning almost half of the new build contracts since March. Sembcorp Marine announced today a US$220.5mn contract win from the leasing company of The Bank of Tokyo-Mitsubishi UFJ, in collaboration with Japan Drilling Co. Ltd (JDC). This comes as a positive surprise as this is the first rig order from JDC in more than two years. The pricing of the contract was also c4-6% higher than Sembcorp Marine’s six earlier orders of their Pacific Class 400 jack-ups. We expect this contract to help in the company’s margin turnaround which we expect later this year (4Q) and going into 2014. The second contract win in a week for the yard supports our view that there is still a strong demand for offshore drilling rigs and we believe a sustained rig-order cycle will continue to benefit the Singapore yards.

Chinese tide slowing down? Singapore yards Keppel Corp (OW/Pos; S$10.69; PT: S$13.30) and Sembcorp Marine have now won more than S$3.0bn in rig orders since March. The earlier trend of orders being placed with Chinese yards had caused some discomfort amongst investors concerned by the possible impact on market share and margins for Singapore yards. The recent contract awards from Noble Corp (EW/Pos) and ENSCO (OW/Pos) to Sembcorp Marine and Keppel Corp respectively supports our recent takeaways from the Offshore Technology Conference in Houston, where various industry participants remained skeptical on whether established drillers would be willing to place orders with Chinese yards. Many highlighted the speculative nature of most orders as well as the lack of 'blue chip' orders from established drillers.

Going back to PPL: JDC’s last rig order was in March 2011, when they placed an order for a KFELS Super B Class with Keppel Corp. Prior to that, the last rig they ordered was in 2005 from Sembcorp Marine. We believe this is another encouraging sign that despite the challenges faced by the company last year, customers continue to come back to Sembcorp Marine.

Contract premium to provide margin upside: With the c4-6% premium in pricing for this rig to the company’s earlier orders, we expect 2014 margins to be more robust as the company will now recognize as many as six Pacific Class 400 repeat design rigs.

S$2.7bn in contract wins to date: Following a quiet second quarter thus far, the second contract win in a week brings Sembcorp Marine’s year-to-date order wins to cS$2.7bn. Following the recent strength in key offshore markets such as the Gulf of Mexico and the North Sea (Positive order outlook from North Sea and GOM strength), we expect the company to win further orders.

Missed opportunity… We think Diamond Offshore’s (UW/Pos) award yesterday of a US$755mn contract to Hyundai Heavy Industries would certainly be considered an opportunity lost for the Singapore yards, considering the size of the contract and quality of the customer.

…but a sign of more to come? However, as pointed out by our US oil services & drilling team (See Barclays Research: Diamond Bags BP Newbuild Semi Award) the strengthening demand in key semi-submersible markets could lead to several orders of semi-subs this year. Although there is no guarantee that the Singapore yards will get any contracts, a stronger demand picture should likely improve the supply/demand balance and could help ease some pressure on pricing and margins. Given their strong track records though, we would expect each yard to have at least a 25% chance for every contract, given that only four established yards would fall under the ‘top quartile’ category for semi-sub newbuilds.