Sembcorp Marine - OCBC Investment 2019-11-13: FY19 Net Loss To Widen

SEMBCORP MARINE LTD (SGX:S51)

Sembcorp Marine - FY19 Net Loss To Widen

SEMBCORP MARINE (SGX:S51) posted a net loss of S$52.6m for 3Q19, bringing 9M19 net loss to S$59.5m. This is a poorer than expected performance – we were forecasting net loss of S$63m and the street was estimating S$67m net loss for the year. See Sembcorp Marine Announcements.
Sembcorp Marine had sunk into a gross loss of S$46m in 3Q, and we believe that this was due to cost provisions booked in the quarter for future work yet to be executed. Cost write-backs may happen in the future should actual cost incurred by lower than expected.

We expect earnings downgrades post this set of results. Despite improved margin recognition from recently secured production floater projects, 9M19 operating loss was mainly due to continued low overall business volume and accelerated depreciation of S$30m arising from the group’s transformation and yard consolidation strategy, where Sembcorp Marine will relocate all operations from its Tanjong Kling Yard by end 2019 and realise cost savings estimated at S$48m per annum from FY20 onwards.
Sembcorp Marine is expecting the trend of losses to continue into 4Q, and the full year loss to be higher than last year.

Sembcorp Marine secured S$400m of new contracts in 3Q19, bringing new orders to S$845m YTD. With this, the net order book stands at S$2.4b, excluding the Sete Brasil drill ships. In comparison, the group’s revenue was in S$4.9b in FY18 and S$3.0b in FY17.
Sembcorp Marine is competing aggressively for jobs in new and existing segments. With the weaker than expected results, we lower our estimates and our fair value estimate slips from S$1.29 to S$1.24. See Sembcorp Marine Share Price; Sembcorp Marine Target Price.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2019-11-13

SGX Stock Analyst Report SELL DOWNGRADE HOLD 1.240 DOWN 1.290