Sembcorp Marine - RHB Invest 2016-07-29: Worse Could Be Over, But Earnings Are Unexciting

Sembcorp Marine - RHB Invest 2016-07-29: Worse Could Be Over, But Earnings Are Unexciting SEMBCORP MARINE LTD S51.SI 

Sembcorp Marine - Worse Could Be Over, But Earnings Are Unexciting

  • Sembcorp Marine’s 1H16 earnings came in line with our expectations, but above consensus. 
  • YTD, it has secured SGD320m in new orders for non-drilling solutions. 
  • We believe the worse could be over for the company and it is taking adequate measures to address the current difficult environment. However, we maintain our NEUTRAL recommendation as we believe earnings will remain unexciting. 
  • There are no changes to earnings or the SGD1.51 TP (5% upside), which is based on 10x FY16F P/E.

SGD9.2bn orderbook. 

  • Sembcorp Marine’s orderbook currently stands at SGD9.2bn. Excluding the Sete Brasil jobs, this comes up to c.SGD6bn. 
  • YTD, the company has secured SGD320m worth of new orders for its floaters & platforms segment. 
  • We would like to point out that c. 80% of its orderbook are progress payment projects, with no lumpy earnings recognition going forward.

Deliveries in 2H16. 

  • Although there were several deferred rigs, its floaters & platforms business is still going strong. Sembcorp Marine expects to deliver at least two floaters and three platform projects in 2H16.

Net gearing reduced to 1x. 

  • The company generated a positive cash flow in 1H16, resulting in a reduced net gearing of 1x (1Q16: 1.07x). Sembcorp Marine sees its working capital and capex as having peaked and gearing should improve going forward. 
  • We expect it to end the year with a net gearing of 0.9x. It declared a DPS of 1.5 cents during the period under review.

Maintain NEUTRAL and SGD1.51 TP based on 10x FY16F P/E. 

  • With the earnings coming in line with our expectations, we make no changes to our TP or earnings forecasts. 
  • Although we believe the worse could be over for Sembcorp Marine, we maintain our NEUTRAL recommendation, as earnings are unlikely to be exciting.

Earnings review for 1H16. 

  • Sembcorp Marine’s revenue came in 25% YoY lower, dragged by lower recognition from its rig building projects due to delivery deferments. Platforms and floaters registered better revenue on the back of good progress. 
  • Sembcorp Marine delivered a total of five projects in 1H16.

Work in progress. 

  • Currently, the company is busy working on several projects in its pipeline. This includes fabrication work for a semi-submersible crane vessel for Heerema Offshore Services BV. The company is also executing engineering, procurement and construction (EPC) works for Maersk Oil’s topside modules as well as the design and construction of a floating, production, storage and offloading (FPSO) unit for MODEC Inc
  • In May, Sembcorp Marine completed its first vessel repair project at its Brazilian yard.

On Sete Brasil. 

  • The company announced that it commenced arbitration proceedings in April to protect its interests under the Sete Brasil contracts. These proceedings are currently on-going. 
  • Recall that Sembcorp Marine made provisions of SGD329m for the Sete Brasil contracts and is comfortable that the provisions are sufficient under the present circumstances.

Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2016-07-29
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 1.51 Same 1.51