Sembcorp Marine - CIMB Research 2015-12-02: When it rains, it pours

Sembcorp Marine  - CIMB Research 2015-12-02: When it rains, it pours SEMBCORP MARINE LTD S51.SI 

Sembcorp Marine When it rains, it pours 

  • SMM has issued a profit warning that it will record a net loss in 4Q15 with a significant decline in net profit for FY15. 
  • It blames a challenging operating environment and customers deferring or seeking to defer their rig orders as the key culprits. 



Profit warning – 4Q15 in a net loss 

  • SMM issued a profit guidance that it is expected to record a net loss in 4Q15 and a significant decline in net profit for FY15. 
  • It blamed the cumulative challenging environment in the first three quarters of 2015 and customers deferring or seeking to defer their rig orders as the reasons for the results to be materially negatively impacted. 

Profit reversals, contract cancellations, kitchen sinking 

  • We estimate a net loss of S$7m-10m on very little revenue from rig building with almost zero progress in Sete Brasil in addition to a reversal of US$214m for the cancelled jackup rig for Marco Polo. 
  • SMM should make some reversal of profits from the cancelled contract. Total EBIT for the project is estimated at US$32m (S$45m). There could be provisions for the impairment for Sete Brasil’s delays as well as further delays for the three Oro Negro and the two Perisai JUs as part of a blanket kitchen sinking exercise. 

3Q15 recap 

  • SMM recorded a 55% qoq drop in net profit of S$49m in 3Q15 and 9M15 net profit at S$247m as EBIT margin slid to 6.6% from its guided target of 10-13%. This was mainly dragged by minimal construction revenue for its proprietary JUs and reversal of profits associated with the Oro Negro and Perisai rigs. 

More pushback 

  • Our EPS is cut by 8-33% for FY15-17 on 11-18% lower revenue as we push back Sete Brasil’s and some other projects’ recognition to FY17-19. We also cut our EBIT expectations from 10.3-11% for FY15-17 to 9.3-10.7% on weaker operating leverage. 

Significant downside to its share price 

  • We lower our 12-month share price, still base on SMM’s long-term -1 s.d of 11x CY17 P/E. De-rating catalysts such as the cancellation of Sete Brasil’s contracts could further dampen the share price and its valuation. 
  • Hypothetically, SMM’s share price could trade down to S$1.31, -2 s.d. or 7.7x CY17 P/E on more negative newsflow. 
  • Maintain Reduce.


LIM Siew Khee CIMB Securities | http://research.itradecimb.com/ 2015-12-02
CIMB Securities SGX Stock Analyst Report REDUCE MAINTAIN REDUCE 1.88 Down 2.03


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