Sembcorp Marine - RHB Invest 2019-07-31: Upturn Delayed But Hopeful On Future Orders


Sembcorp Marine - Upturn Delayed But Hopeful On Future Orders

  • Maintain BUY with lower P/BV-based SGD1.80 Target Price (from SGD1.99), 26% upside.
  • SEMBCORP MARINE LTD (SGX:S51)'s 1H19 net loss of SGD7m was below our FY19F net profit of SGD9m. The weakness was attributed to low business volume. With insufficient new orders secured recently, Sembcorp Marine guided for 2H19 losses to be more than 1H19, and we now forecasting losses for FY19.
  • Nevertheless, we are projecting a turnaround in FY20F, which could drive Sembcorp Marine's share price higher.

Y-o-y contraction in 2Q19 revenue was due to 2Q18 delivery of rigs.

  • Sembcorp Marine's 2Q19 turnover of SGD731m was down 55% y-o-y, due to a high base in 2Q18 with revenue recognition on the delivery of rigs. Excluding the 2Q18 rig deliveries, 2Q19 revenue would have been up 26% y-o-y.
  • 79% of 1H19 revenue was from rigs and floaters, which saw a 49% y-o-y decline. The bright spot was in repairs and upgrades (16% revenue share), which expanded 20% y-o-y as the average value per vessel surged 23% y-o-y.

Accelerated depreciation of SGD11m booked in 2Q19 contributed to losses.

  • From 2020 onwards, with the yard consolidation completed, Sembcorp Marine expects to save SGD48m pa.

Net gearing fell marginally q-o-q.

  • Net debt totalled SGD3.33bn at the 2019 1.47x.
  • For 1H19, net cash from operations was at SGD273m, mainly from receipts for completed projects, partially offset by working capital for ongoing projects.

Guiding for 2H19 losses to be more than 1H19 losses.

  • As insufficient new orders were secured over the last few quarters, Sembcorp Marine is guiding for 2H19 losses to be higher than 1H19’s, with FY19 losses projected to be similar in range to FY18’s losses. Consequently, we cut our FY19F estimates to a net loss of SGD67m from a net profit of SGD9m.

Hopeful of securing new orders.

  • The SGD2bn Sembcorp Industries, announced in Sembcorp Marine’s financial position. Sembcorp Marine has actively responded to tenders and enquiries related to the production and gas value chain segments. This is positive for new orders going forward.
  • We have assumed FY19F new orders of SGD1bn, rising to SGD2.5bn in FY20F.

We value Sembcorp Marine at SGD1.80

  • We value Sembcorp Marine at SGD1.80, based on FY20F P/BV of 1.64x, which is the 5- year mean, on the back of expected sector recovery in 2020 and beyond.
  • Our previous Target Price of SGD1.99 was pegged to 1.8x P/BV, 1SD above 5-year mean – we cut our target P/BV due to the delay in recovery.

Leng Seng Choon CFA RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-07-31
SGX Stock Analyst Report BUY MAINTAIN BUY 1.80 DOWN 1.990