SEMBCORP MARINE LTD (SGX:S51)
Sembcorp Marine - High 3Q19 Losses, But Orderbook Respectable
- Maintain BUY with a lower P/BV-based SGD1.60 Target Price from SGD1.63, 19% upside.
- 9M19 net loss of SGD59m compares with our pre-results FY19F net loss of SGD67m. 3Q19 net loss of SGD53m was attributed to low overall business volumes.
- SEMBCORP MARINE (SGX:S51) guided for FY19 losses to exceed FY18’s SGD74m loss. We believe our assumption of FY19 new orders of SGD1bn is achievable (vs YTD’s SGD845m). We forecast FY20 contract wins of SGD2.5bn, which should drive future earnings and catalyse Sembcorp Marine's share price.
Sharp 3Q19 y-o-y revenue fall due to rigs and floaters segment.
- Sembcorp Marine's 3Q19 revenue of SGD717m was down 39% y-o-y and -2% q-o-q. The sequential flatness points to stabilisation. The sharp y-o-y fall was due to lower revenue recognition from rigs and floaters projects. Excluding the 3Q18 delivery of two jack-up rigs to Borr Drilling, 3Q19 revenue would have fallen a much milder 8% y-o-y. See Sembcorp Marine Announcements.
3Q19 operating loss of SGD53m widens y-o-y.
- This was due to additional costs for rigs and floaters projects and continued low overall business volumes that impacted the absorption of overhead costs.
- Management indicated that Sembcorp Marine will change its work procedures, and that such additional costs may or may not occur in future.
YTD new contracts of SGD845m up 16% y-o-y.
- Consequently, Sembcorp Marine has a current net orderbook of SGD2.42bn, which excludes the Sete Brasil drill ships. Amongst others, Sembcorp Marine signed a new offshore wind contract with Jan De Nul, won an FPSO conversion job from Shapoorji Pallonji and Bumi Armada, and a repeat FPU order from Shell.
- Our earnings model assumes end-FY19F net orderbook of SGD2.8bn and FY20F contract wins of SGD2.5bn.
Better financial flexibility.
- Sembcorp Marine secured a five-year subordinated loan facility of SGD2bn from Sembcorp Industries (SGX:U96) (major shareholder with 61% stake in Sembcorp Marine). SGD1.5bn of this was deployed to retire short-term borrowings. Sembcorp Marine has since obtained the consent of its bondholders to revise the definition of its debt covenant to exclude the SGD2bn from Sembcorp Marine’s net debt to improve its financial flexibility.
Slight reduction in our Target Price.
- We raised our FY19F net loss to SGD76m (from SGD67m net loss), given the latest management guidance. We cut our FY20F net profit by 11% to SGD41m as we factor in a lower gross profit margin.
- We lowered our Target Price to SGD1.60, which is pegged to 1.47x FY20F BV (0.3SD below 1.6x 5-year mean). We are bullish on the YTD contract wins leading to more contract wins in 2020 and beyond. Trading at 1.2x FY20F BV, we see limited share price downside. See Sembcorp Marine Share Price; Sembcorp Marine Target Price.
- Maintain BUY.
Leng Seng Choon CFA
RHB Securities Research
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https://www.rhbinvest.com.sg/
2019-11-13
SGX Stock
Analyst Report
1.600
DOWN
1.630
