Sembcorp Marine - OCBC Investment 2020-04-23: Challenging Outlook

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SEMBCORP MARINE LTD (SGX:S51)

Sembcorp Marine - Challenging Outlook

• Hit by oil price plunge.
• Thinning order book.
• Waiting for news on any restructuring.

Hit by oil price plunge

• Following our last report Sembcorp Marine - OCBC Investment 2020-02-20: Trend Of Losses To Continue, “Trend of losses to continue”, the Sembcorp Marine share price has corrected by about 45% vs. the STI’s 21% fall, mainly because of the significant plunge in oil prices as OPEC+ did a shock and awe and pursued a market share strategy.

Chances of being placed on watch-list

• Recall that Sembcorp Marine (SGX:S51)’s FY19 net loss to S$137m, which was wider than previously expected. The group also saw net loss of S$74m in FY18. According to SGX’s listing manual, should a company record pre-tax losses for the three most recently completed consecutive financial years, and its average daily market cap is less than S$40m over the last six months, it would be placed on a watch-list.
• Currently, Sembcorp Marine’s market cap is way higher than S$40m, but the group has given notice of three consecutive years of pre-tax losses. Indeed, this trend of losses is likely to continue.
• As mentioned in our earlier report, we are expecting 2020 to continue to see losses for the group. Overall business volume remains low, and looking ahead this is likely to continue for all segments expect for repairs and upgrades (underpinned by IMO regulations that require installation of ballast water treatment systems and gas scrubbers).
• Challenges remain, in particular supply chain disruptions due to the COVID-19 virus outbreak, which could affect execution of projects. Competition remains intense for all business segments.

Thinning order book

• Sembcorp Marine last disclosed during its FY19 results that net order book stood at S$2.44b, which is about a year’s worth of revenue. Post the oil price plunge, we adjust our estimates lower and our fair value correspondingly dips to S$0.75 (based on 0.75x P/B).
• See Sembcorp Marine Share Price; Sembcorp Marine Target Price; Sembcorp Marine Analyst Reports; Sembcorp Marine Dividend History; Sembcorp Marine Announcements; Sembcorp Marine Latest News.

Low Pei Han CFA OCBC Investment Research | https://www.iocbc.com/ 2020-04-23

SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.75 DOWN 1.230