Sembcorp Marine - Phillip Securities 2019-05-06: A Soft Start In 2019

SEMBCORP MARINE LTD (SGX:S51)

Sembcorp Marine - A Soft Start In 2019

SEMBCORP MARINE LTD (SGX:S51)'s 1Q19 revenue missed our expectation due to the lower revenue recognition while the small profit was in line with the expectation as we expect losses in the upcoming quarters.
S$175mn worth of new orders secured but the net order book trended down.
Higher net gearing and lower cash levels.
We keep our FY19e BVPS at SG$1.1. Based on the unchanged 5-year average PBR of 1.6x, we maintain our Target Price at S$1.76. It is worth mentioning that the historical PBR low was around 1.0x.
We maintain our recommendation NEUTRAL.

The new contracts of projects comprise the design and construction of a 12,000-cubic-metre LNG bunker vessel. It is the first newbuild of such a type of vessel for the group and repair and modernisation works on 13 cruise ships. The vessel is expected to be delivered in 2021.

As of 1Q19, Sembcorp Marine's net gearing was 1.47, compared to 1.44 by the end of Dec-18.
Cash in hand fell sharply to S$524.0mn (FY18: S$837.7mn) during the period. Sembcorp Marine expects to ultimately collect S$100mn related to the sale of West Rigel rig by Feb-20. Meanwhile, the group also expect the bulk of US$1.2bn related to the sale of jack-up rigs to Borr Drilling to be collected during FY22 to FY24. Hence, the group could face very tight liquidity this year.
Capex for 1Q19 amounted to S$77mn, including the installation of new capabilities and completion of corporate headquarters at Tuas Boulevard Yard. Management believes capex in FY19 could be less than S$300mn which depends on both order flows and the current progress of the existing projects. Maintenance capex will be S$50mn to S$70mn.

The net order book continues to shrink (1Q19: S$5.8bn vs FY18: S$6.2bn). The progress on securing orders from floating LNG is still muted.

Oil price (Brent) recovered from US$50/bbl back to US$75/bbl during 1Q19. Currently, it is trading marginally above US$70/bbl. The market consensus for the oil price in 2019 is in the range of US$60/bbl to US$80/bbl.
Exploration and development spending from the major integrated oil companies is estimated to be US$221bn with an 18.8% y-o-y growth in 2019. Sembcorp Marine will continue to ride through the cycle with the improving market conditions. However, it could face the tightened liquidity issues in the near term due to the drawdown of cash and management is mindful with the working capital turnover.

We keep our FY19e BVPS at SG$1.1. Based on the unchanged 5-year average PBR of 1.6x, we maintain our Target Price at S$1.76.
It is worth mentioning that the historical PBR low was around 1.0x.
We maintain our recommendation NEUTRAL.

Chen Guangzhi Phillip Securities Research | https://www.stocksbnb.com/ 2019-05-06

SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 1.760 SAME 1.760