Sembcorp Marine Ltd - Phillip Securities 2017-11-02: Performance Remains Weak

Sembcorp Marine Ltd - Phillip Securities 2017-11-02: Performance Remains Weak SEMBCORP MARINE LTD S51.SI

Sembcorp Marine Ltd - Performance Remains Weak

  • 9M17 Revenue and PAT missed our expectation by 15.6% and 35.2% respectively.
  • Market is recovering but SMM’s profitability is still weak.
  • We maintain our rating NEUTRAL with a higher TP of S$1.91, based on FY18e EPS of 5 SG cents and a blended 12-month forward PER of 38.2x.



The Positives 


+ Momentum of sector recovery is coming: 

  • In retrospect of 3Q17, SMM made progress in replenishing the order book with contracts including Hull carry-over works for FPSO P-68 Tupi Project (contract value: US$145mn) and a letter of intent for the design and construction of at least two large Compressed Gas Liquid carriers.
  • In the early of Oct-17, the group succeeded in disposing of 9 jack-up rigs for S$1.77bn, and 6 out of which were from terminated contracts. Meanwhile, SMM also receive enquires for projects such as floaters, offshore platforms, gas solutions and specialised shipbuilding. It is expected that the group could manage to nail down some contracts in 4Q17 since the team is speeding up the transactions from Gravifloat.


The Negatives 


- Overstated headline replenishment of net order book: 

  • The YTD net order book arrives at S$2.04bn, of which $S1.77 was from the sale of 9 jack-ups. However, 6 of the 9 rigs were booked into the order book again due to the reselling initiated. As a result, these orders won’t enhance the profitability but only increase the top-line figures. 
  • According to the announcement, the deal could result in S$15mn losses based on the preliminary assessment. If the SMM can deliver cost optimization from the deal, it could help reduce the losses or even generate some profits.


Outlook 

  • Along with the gradual recovery of oil prices, the oil production and drilling activities continue to rejuvenate. 
  • We believe that if the current oil price level maintains, the confidence to restore capex will be strengthened in the upstream segment. However, the development of non-drilling solutions is more sustainable for SMM since the structural shift of energy is occurring. 
  • We expect more order flows from non-drilling segment moving forward.


Maintain NEUTRAL with higher target price of S$1.91 

  • We revised down our FY17e EPS (from 5.4 SG cents to 3.9 SG cents) and FY18e EPS (from 5.3 SG cents to 5 SG cents) due to the expectation of continuous weak profitability. 
  • Based on FY18e EPS of 5 SG cents and blended forward 12-month PER of 38.2x, we derive an updated TP of S$1.91 for FY18. 
  • We maintain our call NEUTRAL.




Chen Guangzhi Phillip Securities | http://www.poems.com.sg/ 2017-11-02
Phillip Securities SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 1.91 Up 1.820



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