Sembcorp Marine - OCBC Investment 2017-07-28: Hopeful Of New Orders

Sembcorp Marine - OCBC Investment 2017-07-28: Hopeful Of New Orders SEMBCORP MARINE LTD S51.SI

Sembcorp Marine - Hopeful Of New Orders

  • Better QoQ.
  • Rig market improving.
  • Interim div S$0.01/share.

Better on a sequential basis 

  • Sembcorp Marine (SMM) saw a 27.8% YoY drop in revenue to S$655.5m and a 51.2% fall in net profit to S$5.6m in 2Q17, dragged by foreign exchange losses of S$34.4m in the quarter. On a QoQ basis, revenue was 14% lower while estimated core net profit was higher at S$39.6m in 2Q17 vs. a core net loss of S$3.6m in 1Q17.
  • Operating margin improved from 1.8% in 1Q17 to 4.3% in 2Q17; recall that 1Q was impacted by costs incurred for the Libra FPSO which is pending finalisation with the customer. 
  • Additional work scope requested by the customer for the P- 68 FPSO is expected to result in new work estimated to be at least US$100m.

Resumes work for Transocean drillships; looking for secondary rig sales 

  • Transocean has requested SMM to actively resume work for its two drillships, and has paid a further 5% on both units. 
  • As for rigs that have been technically completed and accepted but whose deliveries have been deferred, a number of new potential customers have emerged and SMM is in discussions for them to acquire or take over delivery of these assets.

Active enquiries continue 

  • SMM’s net order book stands at S$6.7b, or S$3.6b if the Sete Brasil drillships were to be excluded. YTD, new order flow is low at S$75m, but management is hopeful that this year’s new orders will surpass last year’s S$320m. 
  • Active enquiries continue for non-drilling solutions and SMM is in ongoing discussions with various parties for potential projects in the floaters, production platform, LNG and specialized shipbuilding segments. 
  • The group is also in close discussions with several potential customers relating to near-shore gas infrastructure solutions using the Gravifloat technology, though it may take time for such efforts to translate into orders. 
  • Meanwhile, the group has declared an interim dividend of S$0.01/share, vs. S$0.015/share last year. 
  • After tweaking our estimates, our FV slips slightly from S$2.01 to S$1.98 (still based on 1.6x FY17F P/B), but as we still see a 15% upside over a 12-month time frame, we maintain our BUY rating on the stock.

Low Pei Han CFA OCBC Investment | 2017-07-28
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 1.98 Down 2.010