Sembcorp Marine - OCBC Investment 2017-04-28: Enquiries Gaining Momentum

Sembcorp Marine - OCBC Investment 2017-04-28: Enquiries Gaining Momentum SEMBCORP MARINE LTD S51.SI

Sembcorp Marine - Enquiries Gaining Momentum

  • 1Q17 boosted by disposal.
  • But impacted by variation order.
  • More enquiries in past two months.

1Q17 results boosted by COSCO disposal 

  • Sembcorp Marine (SMM) reported a 17.2% YoY drop in revenue to S$760.1m and a 27.9% fall in net profit to S$39.5m in 1Q17, such that the latter accounted for 34% of our full year estimate. 
  • However, this was boosted by a S$46.8m gain from the divestment of SMM’s 30% interest in COSCO Shipyard Group, which was completed in Jan 2017. Excluding this, we estimate that the group would have seen a net loss before tax of about S$10m. 
  • EBIT margin was low at 1.8% in the quarter, impacted by costs incurred for a floater project (undisclosed) which is pending finalization with the customer, likely in 2Q17. 
  • Management does not expect further costs to be incurred in subsequent quarters from this variation order.

Continues right-sizing operations 

  • SMM continues to right-size its operations by returning yards to the government. The Tanjong Kling yard will also be returned ahead of its lease expiry date. There was a reduction of about 500 in its workforce in 1Q17, including employees and subcontractors. 
  • Since 2015, the reduction in total workforce has been about 9,000.

Enquiries gained momentum in past two months 

  • In 1Q17, SMM had new orders of S$75m (all variation orders). New order enquiries relating to non-drilling solutions have increased over the past two months, and there have been “active engagements with potential customers in recent months for potential projects”. 
  • SMM has also made further progress in the development of its near-shore gas infrastructure solutions using its Gravifloat technologies; the group is in “active discussions with several potential customers” and remains hopeful of new orders in 2017 for this new business segment. 
  • Meanwhile, SMM’s net order book stands at S$7.14b; excluding the Sete Brasil drillships, it is about S$4.02b. 
  • With better visibility of new order flow relating to Gravifloat, we increase our valuation from 1.4x to 1.6x FY17F book (still lower than the -1s.d of 1.95x since 2003), and our fair value estimate rises from S$1.76 to S$2.01. Maintain BUY.

Low Pei Han CFA OCBC Investment | 2017-04-28
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 2.01 Up 1.760