Maybank Kim Eng Research 2015-07-30: Sembcorp Marine - Rough patch not over. Maintain SELL.

Rough patch not over 

  • 2Q15 missed. PATMI dipped 17% YoY despite higher EBIT margin. Interim DPS of SGD 4.0cts vs SGD 5.0cts last year. 
  • Expect weak rig orders and delivery deferrals. Cut FY15/16E order intake to SGD2.2/2.8b. FY15-17E EPS down by 3-16%. 
  • Lowered full-year DPS from SGD 13.0 cts to 9.0 cts. TP cut from SGD2.45 to SGD2.00, 0.55x FY16 EV/Backlog. SELL

What’s New 

  • 2Q15 PATMI of SGD109.2m (-17.0% YoY, +3.2% QoQ) missed expectations. 
  • 1H15 PATMI of SGD215.1m (-15.3% YoY) formed 45/43% of our/consensus FY15E respectively. While 2Q15 EBIT margin rose to 12.2% (1Q15: 10.6%, 2Q14: 11.5%) on more high-margin ship repair revenue, lower rig-building revenue dragged overall profit. 
  • 2Q15 ship repair revenue rose 66% QoQ but that is from a low base. 
  • Interim DPS of SGD 4.0cts is also lower than the SGD 5.0cts last year. 

What’s Our View 

  • SMM has slowed down construction of the Brazil drill-ships pending resolution of Sete Brasil’s financing issue. The first four drill-ships are 80+/74/60/30% complete. 
  • Surprisingly, SMM said that it remains net cashflow positive for these projects and is still owed SGD160m (similar to 1Q15). 
  • SMM also said that it is negotiating with some clients on delivery schedules but would not disclose details. 
  • We note that there is news flow suggesting that Oro Negro may be looking to defer delivery of three jackup rigs due this year. 
  • Net order book stood at SGD10.9b with YTD order win of SGD1.35b. 
  • We cut FY15/16/17E order intake from SGD2.7/3.8/3.8b to SGD2.2/2.6/3.8b. FY15/16/17E EPS are now 6/3/16% lower. 
  • We also lowered full-year DPS forecast from SGD13.0 cts to SGD9.0 cts as we see SMM’s cashflows being constrained by delivery deferrals, possible need to finance Sete Brasil drill-ships construction and capex needs for Phase II of Integrated Tuas yard. 
  • TP slashed from SGD2.45 to SGD2.00 on lower estimates and rolling over to 0.55x FY16 EV/Backlog. 
  • Reiterate SELL.

(Yeak Chee Keong, CFA) 

Source: http://www.maybank-ke.com.sg