Sembcorp Marine - OCBC Investment 2018-10-26: Not Much Of A Surprise


Sembcorp Marine - Not Much Of A Surprise

  • S$29.8m net loss in 3Q18.
  • Slow recovery.
  • In line with our stance all along.

S$80m net loss in 9M18 vs. FY18 forecast of -S$71m (ours) and -S$46m (street)

  • Sembcorp Marine (SMM) reported a 60.2% y-o-y rise in revenue to S$1.17b and a net loss of S$29.8m in 3Q18 vs. net profit of S$100.7m in 3Q17. 3Q17 numbers were restated with the adoption of SFRS (I) on 1 Jan 2018.
  • 9M18 net loss amounted to S$80.1m vs. our forecast of S$70.5m net loss in FY18 and the street’s forecast of S$46.4m net loss.
  • There was an operating loss of S$21.3m in 3Q18 which was not really a surprise given management’s earlier guidance that the trend of operating loss would continue. Looking ahead, this is expected to continue for 4Q18; management has not provided guidance for FY19.
  • Net order book excluding Sete Brasil orders stood at S$3.3b as at end 9M18, while new orders secured YTD amounted to about S$1b.

Outlook by business segment

  • Still, overall business volume and activity for the group is expected to remain low for the immediate quarters. While offshore drilling activities have shown initial signs of improvement, offshore rig orders will take some time to recover as the market remains over-supplied.
  • Meanwhile, the majority of recent new offshore oil and gas orders were for production projects. This trend is expected to continue and Sembcorp Marine is responding to an encouraging pipeline of enquiries and tenders.
  • As for the repairs and upgrade segment, competition remains intense. This segment will be underpinned by regulations that require ballast water treatment systems and gas scrubbers to be installed over the next two to five years.

Slow recovery… in line with our stance all along

  • Overall, despite the improved industry outlook, management mentioned “it will take some time” before there is a sustained recovery in new orders, while competition remains intense and margins are compressed. This is in line with our general stance since the beginning of this year.
  • With the weaker than expected 3Q18 results, we adjust our earnings estimates and our fair value estimate is tweaked from S$1.74 to S$1.73. Maintain HOLD.

Low Pei Han CFA OCBC Investment Research | https://www.iocbc.com/ 2018-10-26
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.73 DOWN 1.740