KEPPEL CORPORATION LIMITED (SGX:BN4)
SEMBCORP INDUSTRIES LTD (SGX:U96)
SEMBCORP MARINE LTD (SGX:S51)
SINGAPORE TECH ENGINEERING LTD (SGX:S63)
YANGZIJIANG SHIPBLDG HLDGS LTD (SGX:BS6)
Singapore Conglomerate 4Q19 Preview - Better Q-o-q Showing
- We expect better q-o-q earnings for industrials in the upcoming 4Q19F results season. SIA Engineering could beat consensus on continuous margin improvement.
- Sembcorp Industries to deliver the strongest swing in quarterly profits from urban development and lower losses from Sembcorp Marine.
- Keppel Corp and ST Engineering: stronger q-o-q and y-o-y.
- Yangzijiang Shipbuilding to deliver steady q-o-q with more deliveries in 4Q19F, offset by lower HTM income.
- Maintain Overweight on the sector.
- Key catalysts: Orders and M&As.
KEPPEL CORPORATION (SGX:BN4): Business as usual
- Keppel Corp (SGX:BN4) 4Q19 results on 23-Jan.
- We project Keppel Corp’s 4Q19F NP grew 24% q-o-q and 47% y-o-y to S$197m, but FY19F NP could meet Bloomberg consensus forecast of c.S$823m and our S$713m. We expect all divisions to report stronger q-o-q for 4Q19F except infrastructure due to the absence of placement dilution gain from KDC in 3Q19.
- Offshore & marine (O&M) should be stronger operationally with 4Q EBIT of c.6% as the yards ramp up work from orders secured in previous years. 2019 order win should be slightly above S$2bn, in line with our S$2.2bn forecast.
- We keep our S$3bn FY19 order forecast intact. As with prior years, there could be year-end impairment at the associate level. Property will deliver stronger q-o-q earnings from more project completion in Vietnam as well as revaluation gains.
- See Keppel Corp Share Price; Keppel Corp Target Price; Keppel Corp Analyst Reports; Keppel Corp Dividend History; Keppel Corp Announcements; Keppel Corp Latest News.
SEMBCORP MARINE (SGX:S51): Orders beat but operating leverage needs to improve
- Sembcorp Marine (SGX:S51) 4Q19 results on 20-Feb.
- Sembcorp Marine closed 2019 with total orders of S$1.5bn, above our S$1.2bn forecast, with more offshore platform contracts secured in Dec. We expect S$1.5bn of new wins in 2020F.
- For 4Q19F, we expect losses to narrow q-o-q to S$27m vs. 3Q19’s S$52.7m. We believe the quantum of accrual of costs for learning curve is unlikely to be as big as in previous quarter. Project costs review would have conservatively covered the lifetime of the projects in 3Q19. Losses could continue in 1H20F although reversal of depreciation (S$48m) may help.
- See Sembcorp Marine Share Price; Sembcorp Marine Target Price; Sembcorp Marine Analyst Reports; Sembcorp Marine Dividend History; Sembcorp Marine Announcements; Sembcorp Marine Latest News.
SEMBCORP INDUSTRIES (SGX:U96): Strong urban development
- Sembcorp Industries (SGX:U96) 4Q19 results on 21-Feb.
- We project Sembcorp Industries’ 4Q19F NP grew c.65% q-o-q to S$81m, driven by stronger earnings from urban development with the bumper development profits of Riverside Grandeur Nanjing as it achieved legal completion. Singapore operations were affected by a plant shutdown in Nov-Dec. India should deliver slight losses if there are no major write-backs. Plant load factor for SEIL 1 improved q-o-q while SEIL 2’s was weaker.
- We expect utilities to achieve c.S$300m profit for FY19F, in line with its average annual profits since 2015 (incl. losses in India in 2016-2017). There are no further provisions to be made pertaining to the legal proceedings with its Chinese wastewater treatment JV. Total provision of S$54m which includes S$10m fine and S$44m settlement were gradually taken in from 2017 to 3Q19.
- See Sembcorp Share Price; Sembcorp Target Price; Sembcorp Analyst Reports; Sembcorp Dividend History; Sembcorp Announcements; Sembcorp Latest News.
ST ENGINEERING (SGX:S63): Growth company
- ST Engineering (SGX:S63) 4Q19 results on 24-Feb.
- We believe ST Engineering’s 4Q19F NP grew c.15% q-o-q and 28% y-o-y to S$160m.
- Aerospace could deliver flat q-o-q earnings due to continuous induction costs for new passengers to freighters (PTF) aircraft and absence of huge end of programme reversal in 3Q19. MRAS should see stronger q-o-q earnings with more nacelle delivery.
- Marine and land systems units likely to delivery stronger q-o-q earnings without one-off provisions of Hornbeck and tax losses, respectively.
- Electronics may deliver weaker q-o-q earnings with some integration costs of Newtec kicking in.
- See ST Engineering Share Price; ST Engineering Target Price; ST Engineering Analyst Reports; ST Engineering Dividend History; ST Engineering Announcements; ST Engineering Latest News.
YANGZIJIANG SHIPBUILDING (SGX:BS6): Return of Chairman
- Yangzijiang Shipbuilding (SGX:BS6) 4Q19 results on 27-Feb.
- We expect Yangzijiang Shipbuilding to deliver slightly better q-o-q (+2% q-o-q) NP of Rmb716m for 4Q19F on the back of a higher number of ships delivered in 4Q19. With a net cash of Rmb4.2bn (as at end-3Q19), there is scope for higher dividend in FY19F. We had previously expected the announcement of its Executive Chairman returning from leave as one of the catalysts for the stock. However, its share price has been neutral since its Dec announcement that Mr Ren has returned after being on leave for more than four months to assist in a confidential probe in China.
- We believe order wins and the appearance of the Chairman at briefings could still catalyse the stock.
- See Yangzijiang Share Price; Yangzijiang Target Price; Yangzijiang Analyst Reports; Yangzijiang Dividend History; Yangzijiang Announcements; Yangzijiang Latest News.
SIA ENGINEERING (SGX:S59): Improvement in margins may be underestimated
- SIA Engineering (SGX:S59) 3QFY20 results on 7-Feb.
- We expect SIA Engineering to deliver a S$51m NP for 3QFY20F on the back of gradual margin improvement from its transformation efforts. Associates earnings should also improve q-o-q with the absence of ramp-up costs in Eagle Services in the previous two quarters.
- See SIA Engineering Share Price; SIA Engineering Target Price; SIA Engineering Analyst Reports; SIA Engineering Dividend History; SIA Engineering Announcements; SIA Engineering Latest News.
Sector valuations attractive for most
- From a valuation standpoint, the sector is cheap with most stocks either trading below book or its own 5-year historical average. Sembcorp Industries trades at 0.6x, or at trough mainly due to the unpredictability of a one-off and the absence of long-term power purchase agreements in India. We think Sembcorp Industries is a long-term restructuring play. The valuation of its energy (previously known as utilities) can be unlocked if the group reduces its reliance on Sembcorp Marine.
- SIA Engineering and Yangzijiang Shipbuilding are also trading at a huge discount to peers. We like SIA Engineering for the M&A angle as well as its steady margin improvement. It is also backed by strong net cash of S$488m (as at end-2QFY3/20). The stock is trading at 16.5x CY20F P/E vs. ST Engineering’s 19x. We believe the success of Temasek’s partial offer in Keppel Corp and potential restructuring among the Singapore yards could spur more interests in Yangzijiang Shipbuilding. Yangzijiang Shipbuilding trades at c. 0.7x CY20F P/BV vs. Singapore yards' c.1.1x.
LIM Siew Khee
CGS-CIMB Research
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https://www.cgs-cimb.com
2020-01-20
SGX Stock
Analyst Report
8.360
SAME
8.360
2.780
SAME
2.780
1.260
SAME
1.260
4.470
SAME
4.470
1.450
SAME
1.450
