Sembcorp Marine - Maybank Kim Eng 2016-07-29: Weak results due to forex drag

Sembcorp Marine - Maybank Kim Eng 2016-07-29: Weak results due to forex drag  SEMBCORP MARINE LTD S51.SI 

Sembcorp Marine (SMM SP) - Weak results due to forex drag

2Q16 missed but dividends higher than expected

  • 2Q16 PATMI of SGD11.5m (-90% YoY, -79% QoQ) missed, dragged by SGD35m of forex loss and SGD8m of impairment for Cosco. 
  • 1H16 PATMI of SGD66.3m (-60% YoY) formed 44%/31% of our/consensus FY16E. 2Q16 op. profit would have been SGD86m if forex was excluded. 
  • Interim DPS of SGD1.5 cts (1H15: SGD4.0 cts) was a surprise, which management said can be supported by receipt of SGD900m cash from recent deliveries in Jul 2016. 
  • We trim FY16-18E EPS by 1-4% but expect more significant cuts by consensus. 
  • Our FY16E DPS is raised from SGD2.0 cts to SGD2.5 cts, which implies a yield of 1.7%. 
  • Maintain SELL with TP of SGD1.00, which is based on NTA adjusted for asset impairments.

Expect slow order replenishment and recognition

  • YTD order wins amounted to SGD320m vs our SGD1.6b FY16 forecasts. Of the orders, SGD180m were variation orders for existing contracts. 
  • Net orderbook of SGD9.2b includes SGD3.2b of Sete Brasil contracts. Remaining projects for FY16 delivery are mainly offshore conversions and platforms, of which the USD696m FPSO Libra is probably the more significant one. 
  • Recent deliveries have allowed it to collect c.SGD900m in cash, of which SGD551m was for the Noble CJ70. But with the deferrals of various rig projects, we expect revenue recognition and monetisation of its work-in-progress to be slow in the coming quarters.

No progress on Sete Brasil

  • Sete Brasil has yet to come up with a restructuring plan. While SMM has taken SGD329m of provisions for its contracts, we remain concerned about the prospects for its Brazil yard and the risk of two FPSO topside projects for Petrobras. 
  • SMM assured that the FPSO projects are on monthly billing and Petrobras has been paying.

Still negative, risks not all priced in

  • We keep our negative view as we believe that rigbuilding will be among the last to benefit even in a cyclical recovery. 
  • Downside risks from more asset write-downs may not have been totally priced in. What could swing our view is if clients proactively take deliveries of the delayed rigs.

Yeak Chee Keong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-07-29
Maybank Kim Eng SGX Stock Analyst Report SELL Maintain SELL 1.00 Same 1.00