Sembcorp Marine - RHB Invest 2016-02-16: Nobody Saw This Coming

Sembcorp Marine - RHB Invest 2016-02-16: Nobody Saw This Coming SEMBCORP MARINE LTD S51.SI 

Sembcorp Marine - Nobody Saw This Coming 

  • SembMarine delivered a shocking SGD537m loss in the final quarter, with large provisions taken on the Sete Brasil drillships and other rigs under construction plus a share of associates’ losses, with Cosco posting an equally outsized loss – this takes full-year PATMI to a SGD290m loss (SGD384m before provisions according to management). 
  • Maintain NEUTRAL with a SGD1.33 TP (from SGD1.81, 9% downside) based on 10x FY16F P/E. 

SGD609m of provisions. 

  • Sembcorp Marine (SembMarine) took SGD329m of provisions on the Sete Brasil drillships and SGD280m for its other rigs under construction. 
  • The magnitude of the provisions takes us and the street by surprise and probably represents a highly-conservative approach to the assets’ net realisable values. 

Dividend cut to 6 cents. 

  • The company declared a final dividend of 2 cents, bringing the full-year sum to 6 cents, equivalent to c.33% of pre-provision PATMI. 
  • We continue to forecast 6 cents in dividends going forward, which are 45%/45%/39% of FY16F-18F PATMI, close to the 48-50% ratios of FY12-14. 
  • Net gearing hit 103%, though management remains sanguine on this issue, expecting upcoming deliveries and lower working capital requirements to bring this to manageable levels. 
  • Given that the company still requires SGD450m (FY16F) and SGD250m (FY17F). 

Prefer Keppel Corp. 

  • While a 4.1% yield may tempt income investors, we see further headwinds, with core earnings likely falling to the SGD280m level for FY16F-17F. 
  • Keppel Corp (KEP SP, BUY, TP: SGD8.08) provides a stronger 6.8% yield, with earnings enjoying diversification benefits from its property and other divisions.

Lee Yue Jer CFA RHB Research | http://www.rhbinvest.com.sg/ 2016-02-16
RHB Research SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 1.33 Down 1.81