Sembcorp Marine - RHB Invest 2020-02-20: Higher FY19 New Orders, Expecting FY20 Losses


Sembcorp Marine - Higher FY19 New Orders, Expecting FY20 Losses

  • Sembcorp Marine's FY19 net loss of SGD137m compares with our and consensus forecast loss of SGD76m and SGD82m respectively – worse than expectations. We cut our FY20F contract wins by 24% to SGD1.9bn (vs FY19’s SGD1.49bn).
  • Despite management’s guidance for losses to persist into FY20, Sembcorp Marine trades at a low P/BV of 1.2x (vs 5-year mean of 1.56x).

Sharp FY19 y-o-y revenue fall largely due to FY18’s delivery of seven jack-ups.

  • Sembcorp Marine (SGX:S51)'s FY19 revenue of SGD2.88bn was down 41% y-o-y. However, excluding the delivery of seven jack-ups and sale of a semi-submersible rig in FY18, FY19 revenue would have been 6% higher.
  • 4Q19 repairs and upgrades recorded a strong revenue rise of 53% y-o-y to SGD214m – this was on the back of higher average value per vessel (+34% for FY19).
  • On the other hand, rigs and floaters recorded 4Q19 revenue contraction of 55% y-o-y to SGD334m.

FY19 new contracts secured was SGD1.49bn, up 26% y-o-y.

  • Some SGD530m of new orders in FY19 pertained to greener solutions, including scrubber and ballast water management system retrofits. Consequently, Sembcorp Marine has a current net orderbook of SGD2.44bn, which excludes the Sete Brasil drill ships.
  • Our earnings model assumes FY20F contract wins of SGD1.9bn and end-FY20F net orderbook of SGD2.4bn.

In discussion with potential purchaser on two drill ships.

We forecast FY20 net loss of SGD48m

  • We forecast FY20 net loss of SGD48m, vs our previous SGD41m profit. This comes on the back of a cut in GPM expectations. We forecast FY20 net losses to be smaller than FY19 on the back of cost savings from the yard relocation (savings of SGD48m pa seen in steady state). Management also guided for losses in FY20F.
  • However, we believe the increasing orderbook trend (particularly for green solutions) should help to bring Sembcorp Marine back to profitability by FY21F.
  • We lower our target price to SGD1.45, which is pegged to 1.43x FY20F P/BV (0.3SD below 1.56x 5-year mean). We assume improving contract wins going forward.
  • Trading at 1.2x FY20F P/BV, we see limited share price downside. Maintain BUY.

Leng Seng Choon CFA RHB Securities Research | 2020-02-20
SGX Stock Analyst Report BUY MAINTAIN BUY 1.45 DOWN 1.600