Sembcorp Marine - OCBC Investment 2019-07-30: Expect Further Downward Earnings Revisions

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SEMBCORP MARINE LTD (SGX:S51)

Sembcorp Marine - Expect Further Downward Earnings Revisions

• Sembcorp Marine Returns to net loss after 1Q profit.
• Slow 1H19 in terms of new orders.
• Net order book declining.

2H19 net loss to be higher than 1H19

• SEMBCORP MARINE LTD (SGX:S51) posted a net loss of S$8.5m in 2Q19, reversing from the net profit of S$1.7m in 1Q19. This brought 1H19 net loss to S$6.8m, which were below our expectations. To recap, we were expecting net profit of S$10.1m for FY19, while the street was looking at S$12.4m.
• With insufficient new orders secured in the last few quarters, Sembcorp Marine is expecting the losses for 2H19 to be higher than 1H19, with the full year losses projected to be similar in range to last year’s losses. As such, we expect further downward earnings revisions from the street post this set of results.

Slow 1H19 in terms of new orders

• Following S$1.2b of new orders that were secured last year, which included several EPC contracts for new production facilities, new order traction in 1H19 was slower. This was mainly due to a tender cancellation arising from changes in project ownership, and delays in final investment decisions for several projects. As such, new contracts secured in 1H19 include S$175m for projects comprising the design and construction of a 12,000-cubic-metre (cbm) LNG bunker vessel as well as repair and modernisation works on 13 cruise ships.

Net order book excl. Sete drillships at S$2.1b

• With the recent strengthening of its financial position (S$2b subordinated loan facility from SCI to retire ~S$1.5b of Sembcorp Marine’s existing borrowings and re-profile remaining borrowings with longer term maturities), Sembcorp Marine’s key priority is building up its order book. Net order book as at end 2Q19 was S$5.27b, vs. S$6.21b as at end FY18. Excluding Sete drillship contracts, net order book stood at S$2.1b as at end 2Q19.
• Net gearing was 1.42x as at end 2Q19, compared with 1.47x as at end 1Q19 and 1.44x as at end FY18.
• Given the weaker than expected results, we tweak our estimates and lower our fair value for the stock from S$1.50 to S$1.45.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2019-07-30

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.45 DOWN 1.600