Sembcorp Marine - RHB Invest 2016-10-26: Looking Forward To Floater Focus

Sembcorp Marine - RHB Invest 2016-10-26: Looking Forward To Floater Focus SEMBCORP MARINE LTD S51.SI

Sembcorp Marine - Looking Forward To Floater Focus

  • Although it has SGD5.3bn of orderbook in the bag, we believe Sembcorp Marine’s earnings for the next two years would remain unexciting, as we expect its drilling solution segment – which is exposed to the exploration value chain – to slow down. 
  • The company is concentrating on floating and offshore solutions, which offer much more resilient demand, as they are mainly used for the production value chain. 
  • Maintain NEUTRAL with a TP of SGD1.33 (1% upside), based on 10x FY17F P/E.

SGD5.3bn orderbook. 

  • Sembcorp Marine’s orderbook currently stands at SGD5.3bn, excluding Sete Brasil drillships which amounted to SGD3.1bn. 
  • YTD, Sembcorp Marine has secured SGD320m coming from its non-drilling solutions arm. Note that this is unchanged from its 1H16 new orders figure.

Concentrating on floaters. 

  • With its drilling solution business slowing down due to lower demand, Sembcorp Marine is concentrating on getting more orders for floating non-drilling solutions. 
  • Currently, the company has seven floater projects in various stages of completion, while it has two offshore platforms to be delivered in the next two years.

Positive cash flow. 

  • For 9M16, the company generated positive operating cash flow of SGD796m, reducing its net gearing to 1.03x from 1.11x end-1H16. 
  • We understand that 80% of its SGD5.3bn orderbook is based on progressive payment, with the remainder based on back-ended payment terms.

Maintain NEUTRAL with SGD1.33 TP, based on 10x FY17F P/E. 

  • With the results coming in below expectations, we reduce our FY16F-17F earnings by 10% and 13% respectively. 
  • The worse could be over for Sembcorp Marine but we expect earnings to continue to be unexciting in a low crude oil price environment, hence we maintain our NEUTRAL call. 
  • The key risk to our forecasts would be unexpected deferrals of jack-up rig projects.

Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2016-10-26
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 1.33 Down 1.510