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Sembcorp Marine - Maybank Kim Eng 2015-10-23: Unabated pressure; maintain SELL

Sembcorp Marine - Maybank Kim Eng 2015-10-23: Unabated pressure; maintain SELL SEMBCORP MARINE LTD S51.SI 

Unabated pressure; maintain SELL 

  • 3Q15 missed on weak rigbuilding, associate losses and impairment. Cut FY15-17E EPS by 12-26%. 
  • EBIT margin was only 6.6% due to suspension of recognition for rigs in which delivery dates were deferred. 
  • Maintain SELL and cut TP from SGD2.00 to SGD1.75, still based on 0.55x EV/Backlog. 


What’s New 

  • 3Q15 PATMI of SGD32.1m (-75.7% YoY, -70.6% QoQ) was a big miss. 9M15 PATMI of SGD247.2m (-36.0% YoY) formed only 54% of our and consensus’ FY15E. 3Q15 EBIT margin dipped to 6.6% (2Q15: 12.2%, 3Q14: 10.0%) as SMM suspended recognition for five jackups (3 x Oro Negro, 2 x Perisai), and reversed some of the past profits recognised. 
  • Higher-margin ship repair revenue also disappointed, at only SGD131m (2Q15: SGD166m, 3Q14: 157m). 
  • In addition, SMM recorded SGD24m of associate losses and SGD17m of impairment, both related to Cosco. 

What’s Our View 

  • Perisai has deferred deliveries for two jackups (USD420m) while Oro Negro may have problems funding the final payments of three jackups (USD626m). These units are on 20/80 payment terms. 
  • Not only does this stretch SMM’s working capital, we worry that it may have to resell these at a lower price given weak market conditions, although it is entitled to forfeit clients’ 20% downpayment. 
  • Net gearing has risen from 0.51x in 2Q15 to 0.64x this quarter. Outlook for drilling rig orders remains dismal and will cap order momentum into FY16. YTD order win of SGD2.9b was mainly for two non-drilling rig orders worth >SGD1b each. About SGD4b of its net orderbook of SGD11.6b relates to Sete Brasil drillships where the latter’s financing problems remained unresolved. 
  • We cut FY15/16/17E EPS by 26/19/12% to factor in the weak results and also removed revenue recognition for the five jackups. 
  • TP lowered from SGD2.00 to SGD1.75, still based on 0.55x EV/Backlog. 
  • Reiterate SELL.


Yeak Chee Keong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2015-10-23
Maybank Kim Eng SGX Stock Analyst Report SELL Maintain SELL 1.75 Down 2.00


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