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www.dbsvickers.com

Refer to important disclosures at the end of this reported: MY / sa: YM

BUY S$4.04 STI : 3,014.77Price Target : 12-month S$ 5.10 (Prev S$ 5.40)Reason for Report : 2Q10 ResultsPotential Catalyst: Contract winsAnalystJanice CHUA +65 6398 7954

janicechua@dbsvickers.com

Jeremy THIA +65 6398 7974

jeremythia@dbsvickers.com

Price Relative

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2006 2007 2008 2009 2010

S$

67

87

107

127

147

167

187

207

Relative Index

Sembcorp Marine (LHS) Relative STI INDEX (RHS)

Forecasts and ValuationFY Dec (S$ m) 2009A 2010F 2011F 2012FTurnover 5,725 4,723 4,187 4,549EBITDA 963 909 822 839Pre-tax Profit 908 857 754 766Net Profit 700 678 601 611Net Pft (Pre Ex.) 712 678 601 611EPS (S cts) 33.8 32.7 29.0 29.5EPS Pre Ex. (S cts) 34.4 32.7 29.0 29.5EPS Gth Pre Ex (%) 50 (5) (11) 2Diluted EPS (S cts) 33.7 32.6 28.9 29.4Net DPS (S cts) 14.9 16.4 14.5 14.7BV Per Share (S cts) 91.0 108.8 121.4 136.2PE (X) 12.0 12.3 13.9 13.7

PE Pre Ex. (X) 11.8 12.3 13.9 13.7P/Cash Flow (X) 11.2 12.0 13.7 13.7EV/EBITDA (X) 6.7 7.4 8.5 8.1Net Div Yield (%) 3.7 4.1 3.6 3.6P/Book Value (X) 4.4 3.7 3.3 3.0Net Debt/Equity (X) CASH CASH CASH CASHROAE (%) 43.7 32.8 25.2 22.9

Earnings Rev (%): (1.2) (17.0) -Consensus EPS (S cts): 30.3 26.1 24.4ICB Industry :IndustrialsICB Sector: Industrial EngineeringPrincipal Business: Principal activities are ship repair, shipbuilding,ship conversion rig building and offshore engineering.

Source of all data: Company, DBS Vickers, Bloomberg

At A GlanceIssued Capital (m shrs) 2,075Mkt. Cap (S$m/US$m) 8,384 / 6,217Major Shareholders

Sembcorp Industries Ltd (%) 61.0Free Float (%) 39.0Avg. Daily Vol.(000) 6,178

DBS Group Research . Equity 4 Aug 2010

Singapore Company Focus

Sembcorp MarineBloomberg: SMM SP | Reuters: SCMN.SI

Petrobras holds the key

2Q10 net profit rose 28% to S$176m, buoyed bymargin expansion despite drop in sales.

Low YTD order wins of S$853m led to decline inorder book to S$4.3bn.

Lowered guidance for order wins of S$2b-$3b,tendered for 7 drillships and 2 semi-subs from

Petrobras worth about US$6.5bn.

Lower FY11F by 17% due to deferring earningsrecognition from lower-margin Petrobras orders.Maintain BUY, TP reduced to $5.10,still with 26%upside.

Growth from margin expansion. Despite lower thanexpected sales, net earnings were in line, boosted bystrong EBIT margins which expanded by 7.3ppt y-o-y to18.4% in 2Q10. Margin expansion was achieved onefficiency gains and projects secured at high prices.Associates contributions rose 18% to S$14.3m, on higher

contributions from Cosco Shipyard Group.

Order book running low at S$4.3bn or 1x sales hence Petrobras orders are vital for sustainability ofearnings in the medium term. We assume lower non-Petrobras orders of S$2bn for FY10, and Petrobrasorders worth US$5bn for 7 drillships to be secured inFY10 potentially a record year in order wins for SMM.

Petrobras revenue deferred on long project lead-time, earnings cut for FY11. Contribution fromPetrobras will be marginal in FY11, as projectsrecognition and completions are staggered over 8 years

till 2018, leading to 17% cut in earnings forecast forFY11. SMMs target is shaved to $5.10 pegged to PE onblended FY10/11 earnings. Maintain BUY in anticipationof contract wins in coming quarter.

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2Q10 results review.

SMMs 2Q10 revenue of S$1.1bn (-27% y-o-y) was belowexpectations due to slower recognition of order book sales

from rig building and conversion projects and lower ship

repair revenue (-10% y-o-y).

Despite the lower than expected revenue, 2Q10 net profit of

S$176.1m was in line, boosted by strong EBIT margins which

expanded by 7.3ppt y-o-y to 18.4% in 2Q10. Margin

expansion was achieved on 1) completion of three

conversion/offshore projects and one semi-submersible rig,2) efficiency gains and 3) projects secured at high prices.

Associates contributions rose 18% to S$14.3m, on higher

contribution from its 30%-owned Cosco Shipyard Group.

Balance sheet remained strong, with net cash of S$2.4bn.

The group declared an unchanged interim dividend of 5.0

Scts per share.

Sembcorp Marines 2Q10 Results Summary and Comments

FY Dec (S$ m) 2Q09 1Q10 2Q10 % chgq-o-q % chgy-o-y Comments

Sales 1,497.6 1,359.4 1,097.9 -19% -27% Lower y-o-y due to slower revenue recognition forrigbuilding projects during the quarter and lower shiprepair revenue

COGS (1,304.7) (1,167.9) (860.9) -26% -34%Gross Profit 193.0 191.4 237.1 24% 23% .

Other Operating Inc (9.9) 3.7 8.3 121% NM

Admin exp (23.5) (24.8) (34.7) 40% 47%

Other Operating Exp 7.2 (10.8) (8.3) -23% NM

Operating Profit 166.7 159.6 202.3 27% 21%

Non-Operating Inc 0.4 0.0 3.3 NM NM

Net interest inc/(exp) 7.3 12.9 4.9 -62% -33%

Assocs'/JV Inc 12.0 12.4 14.3 15% 19% Higher contribution from SMM's 30% owned CoscoShipyard Group due to better margins on shipbuilding

and exceptional gains on a rigbuilding project

Exceptionals (7.5) 0.0 0.0 NM NM

Pretax Profit 178.9 184.9 224.8 22% 26%

Tax (33.1) (33.2) (41.4) 25% 25%

Minority Interests (7.7) (2.9) (7.3) 154% -5%

Net Profit 138.1 148.8 176.1 18% 28%MarginsGross margins 12.9% 14.1% 21.6%

EBIT margins 11.1% 11.7% 18.4% Margins were higher on the back of improvedproductivity in the execution of rig building, offshore

and conversion projects, as well as completion ofprojects ahead of schedule

Net margins 9.2% 10.9% 16.0%

Segmental revenueFY Dec (S$ m) 2Q09 1Q10 2Q10 % chgq-o-q % chgy-o-yRigbuilding 1,030.2 886.5 737.4 -17% -28% Decline due to timing of initial revenue recognition

Offshore & conversion 280.4 319.8 197.9 -38% -29% Decline due to timing of initial revenue recognition

Repair 173.0 143.7 155.4 8% -10% Lower average value per vessel repaired

Others 14.0 9.4 7.2 -23% -48%

1,497.6 1,359.4 1,097.9 -19% -27%Source: Sembcorp Marine, DBS Vickers

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Outlook

YTD order wins of S$853m has been weak, vs. expectednon-Petrobras orders of S$2.5bn. This has led to a decline in

net orderbook from S$5.0bn as end March 2010 to S$4.3bn

as at June, to be recognized up to end 2012. With 5 months

remaining in FY10, guidance remains for S$2bn to S$3bn of

order wins this year excluding contracts relating to

Petrobras 28 newbuild rig tender. As such, we have cut

back non-Petrobras order wins to S$2bn from S$2.5bn

previously. These are likely to be made up of production

related projects, as highlighted in the table on the page 4.

Petrobras holds the key to order book growth. SMM hastendered for seven drillships and two semi-submersibles in

May 2010, competing with six other yards for a slice of

Petrobras orders. Assuming each rig is valued at US$700m,

this could mean potential orders of around US$5bn for the

batch of drillships and US$1.5bn for the 2 semi-

submersibles. The contracts will be awarded soon, given that

both technical and commercial bids have been submitted.

Should the Petrobras contracts of seven drillships be

awarded to SMM, it will mean a record year in order wins, at

S$9bn for 2010.

Revenue on assumed Petrobras orders deferred due to longproject lead-time; FY11 earnings forecast reduced. We haveassumed that SMM will win seven drillships worth US$5bn in4Q10. Delivery will be in 8 years, staggered from 2014 till

end 2018. We expect the first rig to be completed in 4

years from the date of award (i.e. delivery in 2014), and the

subsequent rigs delivered at intervals of around 6-9 months.

Given SMMs policy to recognize revenue only upon

achieving 20% completion of the project, coupled with the

longer lead-time required to start this mega project, the first

sign of revenue for the first rig is likely to only kick in from

4Q11 onwards, or only around 3% of the US$5bn order. As

a result, we have cut our FY11 revenue and net profit

forecasts by 27% and 17% respectively, to S$4.2bn and

S$600.6m.

Lumpy profit recognition from CJ-70 jackup and SongaEclipse semisub will cushion the drop in FY10/11. We believethat the drop in rigbuilding revenue and earnings in FY11

will be partially cushioned by:

a) Profits amounting to an estimated S$100m from the CJ-

70 jackup rig which will be recognized over 3Q10-

1Q11. To recap, CJ-70 is currently under construction,

but profits have yet to be recognized as the original

owner ran into financial distress. It was eventually sold

to Seadrill in 3Q10 for US$356m, excluding certain

owner-furnished equipment.

b) Unbooked profits from the Songa Eclipse (ex Larsen RigI), a project worth US$640m, with an estimated profit

of S$80m which will likely be recognized in FY11 upon

completion.

Lumpy profits from these two projects back loaded in FY10

(from 3Q10 for CJ70) and in FY11 for Songa Eclipse will

result in higher EBIT margins for the rigbuilding division,

despite the declining sales.

Petrobras orders are important for sustainability of earningsbeyond FY11. While near term impact from these orders ismuted due to the protracted recognition schedule, these

contracts are significant for future earnings beyond FY11.

Coupled with expected higher shiprepair sales with the new

mega yard at Tuas kicking in from 2H12, we project SMM to

post S$610.6m net profit in FY12, +2% y-o-y.

SMMs quarter order wins

Source: Sembcorp Marine, DBS Vickers

SMMs outstanding order book

Source: Sembcorp Marine, DBS Vickers

Q u a r t e r ly o r d e r w i n s ( S $ m )

0

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Outstanding order book (S$ m)

0

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1Q04

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1Q09

2Q09

3Q09

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1Q10

2Q10

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List of projects Sembcorp Marine and its affiliates could be in the running for est US$3bn

Datereported End user / client Requirement Designated usage Estimated value(US$ m)23-Jul-10 Petrobras P-62 conversion To produce heavy oil on the

Roncador field in the Campos basinNA

16-Jul-10 Woodside Petroleum Specialized semisubmersible drillingunit

For development wells onWoodside's Browse LNG Project offWestern Australia

300

15-Jul-10 Heerema MarineContractors

Hybrid heavylift pipelay vessel -Ulstein Sea of Solutions design;similar design to the DP3 5000tonne heavylift vessel Borealis underconstruction at SembawangShipyard

For offshore pipelaying activities. 200-250

9-Jul-10 Chevron 1x 57,000-tonne processingplatform

Wheatstone liquefied natural gasproject in Western Australia

NA

25-Jun-10

Total Engineering, procurement,installation and construction worksfor wellhead platforms and subseapipelines.

Field developments in the OffshoreMahakam area off East Kalimantanin Indonesia

NA

11-Jun-10

Aramco 13 wellhead platforms to beinstalled on previously awarded

jackets, as well as 2 tie-in platformsand hundreds of kilometers ofpipelines

Wasit programme, giant gas projectcovering the Arabiyah and Hasbahfields

>1,000

8-Jan-10 Transocean 208m long drillship with newdesign specified by Transocean.Voyager-class vessel will feature anX-bow and a single collapsiblederrick to help pass through thePanama Canal.

NA >500

Source: Upstream, DBS Vickers

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Maintain BUY, with revised TP of S$5.10.

Our fair value for SMM has been adjusted to S$5.10.

We have rolled forward our valuation pegs to blendedFY10/11 PE (previously FY10 PE), and factored in the recently

revised TP for Cosco of S$1.88 (previous S$1.80).

Potential catalysts include 1) new offshore contract wins,

specifically the award of Petrobras tenders in 3Q or 4Q10,

and 2) new contracts for Cosco Corp. Maintain BUY onSMM.

Sum-of-parts valuation for Sembcorp Marine

Components % stakeFY10FPATMI(S$ m)

FY11FPATMI(S$ m)

BlendedFY10/11FPATMI(S$ m)

Est.marketvalue(S$ m)Value pershare(S$) Basis

Ship Repair - SMM ex CSGcontribution

100.0% 56.9 65.9 61.4 1,105.5 0.53 18x blended FY10/11 PE

Offshore - SMM ex CSGcontribution

100.0% 576.3 466.4 521.3 8,351.7 4.03 16x blended FY10/11 PE

30% share of CSG net profit -ship repair

30.0% 26.7 33.8 30.3 544.6 0.26 18x blended FY10/11 PE

30% share of CSG net profit -shipbuilding

30.0% 14.8 31.3 23.0 345.7 0.17 15x blended FY10/11 PE

Stake in Cosco Corp 5.0% 209.4 0.10 Revised DBSV TP of S$1.88

674.6 597.4 636.0 10,556.9 5.10Target price (S$) 5.10Implied FY10 PE (x) 15.6

Implied FY11 PE (x) 17.6

Implied Blended FY10/11 PE (x) 16.5

Source: DBS Vickers

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Income Statement (S$ m) Balance Sheet (S$ m)FY Dec 2009A 2010F 2011F 2012F FY Dec 2009A 2010F 2011F 2012FTurnover 5,725 4,723 4,187 4,549 Net Fixed Assets 678 896 1,249 1,169Cost of Goods Sold (4,739) (3,781) (3,379) (3,724) Invts in Associates & JVs 268 318 373 441Gross Profit 986 942 808 825 Other LT Assets 224 224 224 224Other Opng (Exp)/Inc (124) (179) (134) (146) Cash & ST Invts 1,979 1,822 1,671 1,947Operating Profit 862 763 674 679 Inventory 1,253 1,033 916 995Other Non Opg (Exp)/Inc 0 3 0 0 Debtors 229 394 349 455Associates & JV Inc 25 63 68 80 Other Current Assets 58 58 58 58Net Interest Ex /Inc 31 28 11 7 Total Assets 4,688 4,744 4,840 5,289Exce tional Gain/ Loss 11 0 0 0Pre-tax Profit 908 857 754 766 ST Debt 12 12 12 12Tax (151) (151) (128) (130) Other Current Liab 2,623 2,183 1,942 2,005Minority Interest (57) (29) (25) (25) LT Debt 8 108 158 208Preference Dividend 0 0 0 0 Other LT Liabilities 84 84 84 84Net Profit 700 678 601 611 Shareholders E uit 1,884 2,252 2,514 2,824Net Profit before Except. 712 678 601 611 Minority Interests 76 105 130 156EBITDA 963 909 822 839 Total Cap. & Liab. 4,688 4,744 4,840 5,289Sales Gth (%) 13.0 (17.5) (11.3) 8.6 Non-Cash Wkg. Capital (1,084) (698) (619) (497)EBITDA Gth (%) 51.3 (5.6) (9.6) 2.1 Net Cash/(Debt) 1,959 1,702 1,501 1,727Opg Profit Gth (%) 71.8 (11.5) (11.7) 0.8Net Profit Gth (%) 62.8 (3.2) (11.4) 1.7Effective Tax Rate (%) 16.6 17.6 17.0 17.0

Cash Flow Statement (S$ m) Rates & RatioFY Dec 2009A 2010F 2011F 2012F FY Dec 2009A 2010F 2011F 2012FPre-Tax Profit 908 857 754 766 Gross Margins (%) 17.2 19.9 19.3 18.1Dep. & Amort. 75 80 80 80 Opg Profit Margin (%) 15.1 16.2 16.1 14.9Tax Paid (58) (253) (151) (128) Net Profit Margin (%) 12.2 14.4 14.3 13.4Assoc. & JV Inc/(loss) (25) (63) (68) (80) ROAE (%) 43.7 32.8 25.2 22.9Chg in Wkg.Cap. (519) (283) (56) (124) ROA (%) 15.1 14.4 12.5 12.1Other Operating CF 33 0 0 0 ROCE (%) 38.2 27.2 20.5 18.2Net Operating CF 414 337 558 513 Div Pa out Ratio % 44.2 50.0 50.0 50.0Ca ital Ex . net 60 298 433 0 Net Interest Cover x NM NM NM NMOther Invts.(net) 0 0 0 0 Asset Turnover (x) 1.2 1.0 0.9 0.9Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 22.6 24.1 32.4 32.2Div from Assoc & JV 13 13 13 13 Creditors Turn (avg days) 125.4 143.7 140.8 120.7Other Investing CF (13) 0 0 0 Inventory Turn (avg days) 81.7 112.7 107.8 95.7Net Investing CF (61) (285) (420) 13 Current Ratio x 1.3 1.5 1.5 1.7Div Paid 233 310 339 300 uick Ratio x 0.8 1.0 1.0 1.2Chg in Gross Debt (202) 100 50 50 Net Debt/Equity (X) CASH CASH CASH CASHCapital Issues 10 0 0 0 Net Debt/Equity ex MI (X) (1.0) (0.8) (0.6) (0.6)Other Financing CF (4) 0 0 0 Capex to Debt (%) 299.7 247.9 254.4 0.0Net Financing CF (429) (210) (289) (250) Z-Score X 2.3 4.2 4.3 4.1Net Cashflow 75 157 150 276 N. Cash/ Debt PS S cts 94.6 82.2 72.5 83.3

Opg CFPS (S cts) 45.0 30.0 29.7 30.8Free CFPS (S cts) 17.1 1.9 6.1 24.8

Quarterly / Interim Income Statement (S$ m) Segmental Breakdown / Key AssumptionsFY Dec 3Q2009 4Q2009 1Q2010 2Q2010 FY Dec 2009A 2010F 2011F 2012FTurnover 1,520 1,343 1,359 1,098 Revenues (S$ m)Cost of Goods Sold (1,314) (903) (1,168) (861) Rig Building (newbuilds) 706 655 748 798Gross Profit 207 440 191 237 Offshore & Conversion 1,343 1,103 2,033 2,325Other Oper. (Exp)/Inc (33) (53) (32) (35) Ship repair 3,635 2,926 1,365 1,385Operating Profit 174 387 160 202 Shi buildin newbuilds 0 0 0 0Other Non Opg (Exp)/Inc 0 0 0 3 Others 41 39 41 41Associates & JV Inc 8 10 12 14 Total 5,725 4,723 4,187 4,549Net Interest Ex /Inc 1 22 13 5Exceptional Gain/(Loss) 0 (4) 0 0 Key AssumptionsPre-tax Profit 183 395 185 225 Order wins S$ m 1,245.0 8,860.0 5,000.0 4,000.0Tax (31) (62) (33) (41)

Minority Interest (7) (35) (3) (7)Net Profit 145 297 149 176Net profit bef Except. 145 301 149 176EBITDA 200 396 193 241

Sales Gth (%) 1.5 (11.7) 1.2 (19.2)EBITDA Gth (%) 1.3 97.7 (51.4) 25.2Opg Profit Gth (%) 4.4 122.5 (58.8) 26.8Net Profit Gth (%) 4.8 105.5 (49.9) 18.4Gross Margins (%) 13.6 32.8 14.1 21.6Opg Profit Margins (%) 11.4 28.8 11.7 18.4Net Profit Margins (%) 9.5 22.1 10.9 16.0

Source: Company, DBS Vickers

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DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)BUY (>15% total return over the next 12 months for small caps, >10% for large caps)HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)FULLY VALUED (negative total return i.e. > -10% over the next 12 months)SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)Share price appreciation + dividends

DBS Vickers Research is available on the following electronic platforms: DBS Vickers (www.dbsvresearch.com); Thomson(www.thomson.com/financial); Factset (www.factset.com); Reuters (www.rbr.reuters.com); Capital IQ (www.capitaliq.com) and Bloomberg(DBSR GO). For access, please contact your DBSV salesperson.

GENERAL DISCLOSURE/DISCLAIMERThis document is published by DBS Vickers Research (Singapore) Pte Ltd ("DBSVR"), a direct wholly-owned subsidiary of DBS VickersSecurities (Singapore) Pte Ltd ("DBSVS") and an indirect wholly-owned subsidiary of DBS Vickers Securities Holdings Pte Ltd ("DBSVH").[This report is intended for clients of DBSV Group only and no part of this document may be (i) copied, photocopied or duplicated in anyform by any means or (ii) redistributed without the prior written consent of DBSVR.]

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DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transactionas a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarificationon disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

ANALYST CERTIFICATIONThe research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about thecompanies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part ofhis/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of4 Aug 2010, the analyst and his / her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in thesecurities recommended in this report (interest includes direct or indirect ownership of securities, directorships and trustee positions).

COMPANY-SPECIFIC / REGULATORY DISCLOSURES1. DBS Vickers Securities (Singapore) Pte Ltd and its subsidiaries do not have a proprietary position in the mentioned

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3. Compensation for investment banking services:i. DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA may have received compensation, within the past

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ii. DBSVUSA does not have its own investment banking or research department, nor has it participated in anyinvestment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing toobtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction inany security discussed in this document should contact DBSVUSA exclusively.

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