Sembcorp Marine - RHB Invest 2016-04-28: Concern Remains On Its Rig Business

Sembcorp Marine - RHB Invest 2016-04-28: Concern Remains On Its Rig Business SEMBCORP MARINE LTD S51.SI 

Sembcorp Marine - Concern Remains On Its Rig Business

  • Even in the current downturn, Sembcorp Marine’s core businesses are being kept busy by its orderbook of SGD9.7bn of which 83% is composed of rigs and floaters while the rest comes from its offshore platforms business. 
  • We believe its rig business could encounter further delays in deliveries though, which may affect its bottomline. 
  • Maintain Neutral with a TP of SGD1.51, based on 10x FY16F P/E.

Orderbook of SGD9.7bn 

  • Orderbook of SGD9.7bn as of the end of 1Q16 which should keep the group busy until 2018. 
  • Despite the tough market conditions, Sembcorp Marine managed to start the year with SGD60m of new orders for liquefied natural gas (LNG) module fabrication.

Core businesses going strong. 

  • For floaters, there are six vessels under conversion while there are five offshore platforms being built. 
  • Although its rig building businesses is registering 21 rigs being constructed, this includes rigs that are being delayed for delivery.

Balance sheet. 

  • Sembcorp Marine expects its net gearing to come down and improve as projects are completed and delivered. 
  • Its net debt stands at SGD2.9bn with a net gearing of 1.15x. 
  • In FY16, Sembcorp Marine is expecting a cash influx of SGD1.5bn-2bn from the successful delivery of projects this year.

Maintain Neutral, with a TP of SGD1.51 based on 10x FY16F P/E. 

  • We raise our earnings slightly by 8%/11% for FY16/FY17 respectively, as we update our assumption of backloaded deliveries. 
  • Maintain our Neutral recommendation as we remain concerned over its rig segment which is facing requests for deferred deliveries.

On Sete Brasil. 

  • Recall that Sete Brasil shareholders have approved a resolution to file for judicial recovery. In turn, Sembcorp Marine has commenced arbitration proceedings against the various subsidiaries of Sete Brasil for claims on work completed, further construction progress as well as partial title to units. 
  • We are not expecting the matter to be resolved overnight as the restructuring could be a long and prolonged process. 
  • Sembcorp Marine reiterated its position that the SGD329m provision it made in 4Q15 is adequate under present circumstances.

On Marco Polo Marine. 

  • Closer to home, Sembcorp Marine terminated its contract with Marco Polo Marine (MPM SP, NR) as the latter failed to make the second payment of 10% of the USD21m contract price by 30 Nov 2015. The matter is now in arbitration. 
  • On the rest of its deferred rigs, Sembcorp Marine mentioned that all rigs have been technically accepted by its customers and have arrived or are at the final stage of a mutually acceptable solution.

Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2016-04-28
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 1.51 Up 1.33