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

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.

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.

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.

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