Sembcorp Marine - OCBC Investment 2016-07-29: Interim dividend cut to 1.5 S cents

Sembcorp Marine - OCBC Investment 2016-07-29: Interim dividend cut to 1.5 S cents SEMBCORP MARINE LTD S51.SI 

Sembcorp Marine: Interim dividend cut to 1.5 S cents

  • S$11.5m net profit in 2Q16.
  • New orders from variation work.
  • Focus is on successful deliveries.

2Q16 results below expectations, dragged by forex

  • Sembcorp Marine (SMM) reported a 24.8% YoY drop in revenue to S$908.5m and an 89.5% plunge in net profit to S$11.5m in 2Q16, such that 1H16’s net profit of S$66.3m accounted for 31% and 30% of ours and the street’s expectations, respectively. 
  • Results were below expectations, but we note that earnings were also dragged down by forex losses of S$35m in the quarter, mainly due to the revaluation of assets and liabilities denominated in Pounds sterling and the USD to SGD. 
  • Gross profit margin was 11.7% in 2Q16 vs. 16.5% in 2Q15 and 8.8% in 1Q16.

S$320m new orders from variation work in 1H16

  • SMM also secured S$260m in new orders in 2Q16 after clinching S$60m in 1Q16. All of these are variation orders for existing work, and are non-drilling solutions. This brought net order book to S$9.2b as at end 2Q16; excluding Sete Brasil projects, net order book stood at S$6b. This compares to turnover of about S$5b in FY15.

Interim dividend of 1.5 S cents vs. 4.0 S cents in 1H15

  • Given the poor operating environment, the group has declared an interim dividend of 1.5 S cents, down from 4.0 S cents a year ago; this represents a payout ratio of 47% compared to 39% for 1H15. 
  • We believe that management took comfort from the fact that there were positive operating cash flows of S$909m in the month of July due to the successful delivery of the Noble Lloyd Noble rig (S$550.8m) and payments for certain floater and offshore platform projects (S$357.9m). 
  • Total capex for FY16 is also expected to be less than half that of FY15 which saw about S$905m of capex.

Tweak FV to S$1.13

  • Looking ahead, the group will likely focus on execution and successful deliveries so as to improve its cash flow and liquidity position. 
  • We tweak our earnings estimates to incorporate the forex losses, and our fair value estimate drops slightly from S$1.14 to S$1.13, still based on 0.9x FY16F book
  • As current valuations remain rich, we maintain our SELL rating on the stock. 

Low Pei Han OCBC Securities | http://www.ocbcresearch.com/ 2016-07-29
OCBC Securities SGX Stock Analyst Report SELL Maintain SELL 1.13 Down 1.14