Conglomerate - CGS-CIMB Research 2019-01-22: 4Q18 Preview ~ Lacklustre And Offering Pockets Of Entry

Conglomerate - CGS-CIMB Research | SGinvestors.io YANGZIJIANG SHIPBLDG HLDGS LTD (SGX:BS6) KEPPEL CORPORATION LIMITED (SGX:BN4) SINGAPORE TECH ENGINEERING LTD (SGX:S63) SEMBCORP INDUSTRIES LTD (SGX:U96) SEMBCORP MARINE LTD (SGX:S51)

Conglomerate - 4Q18 Preview ~ Lacklustre And Offering Pockets Of Entry

  • Keppel Corp will be the first to report its earnings on Thurs (31 Jan) and is likely to be in line. ST Engineering and Sembcorp Industries could miss, but Yangzijiang Shipbuilding could beat consensus. We maintain Overweight on the sector. Valuations are close to c. -1 s.d. of 5-year average. Earnings recovery in FY19F could be the key catalyst.
  • ST Engineering is our 12-month preferred pick on acquisition-led earnings growth.


Order momentum lacklustre, as we expected

  • Singapore conglomerates may post uninspiring 4Q18 results as consensus have built in stronger y-o-y recovery/growth.
  • Contract wins among the yards came in lower than expected but that was not a surprise given the uncertain global sentiment and crude oil direction. KEPPEL CORPORATION LIMITED (SGX:BN4) closed FY18 with c.S$1.7bn of orders (vs. our S$2bn) and SEMBCORP MARINE LTD (SGX:S51) about S$1.2bn, including a US$166m FPSO Varg modification work.


Keppel Corp (24 Jan): need completion of China property

  • KEPPEL CORPORATION LIMITED (SGX:BN4)’s 4Q18F NP could contract 14% q-o-q to S$194m but FY18 should meet consensus forecast of c.S$1bn.
  • O&M’s associates could have year-end impairment that may swing the unit to a minor loss vs. a S$1m profit in 3Q18.
  • Progress of property completion in China is key as they were supposedly pushed back from 3Q18.
  • Infrastructure could see q-o-q contraction from the absence of divestment gains from KEPPEL DC REIT (SGX:AJBU) stake in 3Q18.
  • Investment earnings should improve q-o-q as investment costs for Keppel Capital tapered, in addition to partial land sale recognition in TEC.
  • Final DPS could be flat h-o-h at S$0.15.


Sembcorp Marine (19 Feb), Sembcorp Industries (21 Feb): will India FY19F outlook be better?

  • We expect Sembcorp Marine to register a 4Q18 net loss of c. S$24m (consensus expects loss of S$18m). We think the misses in Sembcorp Marine should not be taken negatively as it was well guided.
  • We expect SEMBCORP INDUSTRIES LTD (SGX:U96)’s NP to contract 60% q-o-q to S$37m. On an FY18 basis, it could miss consensus’ S$317m due to higher expectations on Sembcorp Marine and India. TPCIL was operating at c.48% utilisation as the boiler 1 shutdown has been unresolved since Oct 18. We believe insurance claims will only kick in by late-1Q19. Margins for India could be under pressure in FY19 if SGPL is required to step up (on imported coal) to fulfill customer’s offtake. Singapore earnings could also see higher customer acquisition costs for the new electricity market as well as the lack of S$13m gain for pipeline sale in 3Q18.


ST Engineering (21 Feb): will MRAS completion be pushed back?

  • Total contract win in 4Q18 was c. S$1.36bn (+ 12% q-o-q) lifted by marine’s S$560m. SINGAPORE TECH ENGINEERING LTD (SGX:S63) 4Q18 NP could come in flat q-o-q to S$132m vs. consensus’ S$173m. Aerospace could deliver flat q-o-q earnings due to induction costs for new PTF aircraft. Marine should deliver stronger q-o-q earnings from the delivery of Conro and resumption of Ropax charter contracts.
  • Partial shutdown of US government may delay MRAS completion by 1Q19.


Yangzijiang Shipbuilding (28 Feb): may beat the rest

  • Assuming no provision write-backs, we expect YANGZIJIANG SHIPBLDG HLDGS LTD (SGX:BS6) to deliver -10% q-o-q NP in 4Q18 at S$700m, above consensus of c.S$580m. We expect core shipbuilding gross margin to hover at around 15%, down from 20% in 3Q18.





LIM Siew Khee CGS-CIMB Research | https://research.itradecimb.com/ 2019-01-22
SGX Stock Analyst Report ADD MAINTAIN ADD 1.370 SAME 1.370
ADD MAINTAIN ADD 8.280 SAME 8.280
ADD MAINTAIN ADD 3.940 SAME 3.940
ADD MAINTAIN ADD 3.490 SAME 3.490
ADD MAINTAIN ADD 2.460 SAME 2.460



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