Sembcorp Marine - CGS-CIMB Research 2020-07-15: Restrained By Lockdowns


Sembcorp Marine - Restrained By Lockdowns

  • Sembcorp Marine’s 1H20 net loss of S$192m was wider than expected. We had expected a S$119m loss for FY20F, while consensus expected an S$84m loss.
  • Gross loss of S$1.1bn (-21%) was due to almost 3 months of zero activity. Ship repair and windfarm projects were executed profitably.
  • We cut our EPS by 120-161% for FY20-21F as we deferred revenue recognition. Reiterate HOLD, with Target Price lowered to S$0.46 (0.5x CY20F P/BV).

Stand-down since Apr

  • Sembcorp Marine (SGX:S51)'s 1H20 revenue fell 41% y-o-y and 32% hoh to S$906m. The government’s Covid-19 circuit breaker measures led to yard shutdowns since Apr 20, resulting in almost zero production for three months. At that time, there were only 850 essential workers in the yard, mainly for repair work and yard upkeep (compared with its pre-Covid staff strength of c.20k).
  • Currently, workers and subcontractors are slowly returning to work after obtaining authority approvals on the living conditions at worker dormitories.
  • The 1H20 gross loss of S$1.1bn took into account the effects of lockdowns and blanket delays for projects. Three months of government grants (S$42m) and lower depreciation (-21% y-o-y) did not help.

Windfarms executed profitably; Transocean drill ships delayed

  • Other than ship repair, key projects in 1H20 included the two Transocean drillships, which generated S$141m of drilling revenue in 1H20 (-43% y-o-y). Delivery of these rigs ( > 50% complete) has been postponed to 1H21 (previously 2H20 and 1H21).
  • Production segment’s 1H20 revenue of S$318m (-54% y-o-y) was mainly from floating production storage offloading (FPSO)/floating production unit (FPU) projects for Shell, Petrobras, Shpoorji and Karish.
  • Offshore platform’s revenue grew 165% y-o-y, thanks to the Hornsea II and Formosa windfarm projects secured in 4Q19, which were executed profitably.

No lack of work for repair; group order backlog at S$2.2bn

  • Ship repair’s 1H20 revenue grew 4% y-o-y and 47% hoh to S$258m, mainly due to better mix of projects. These include the upgrade of floating storage and regasification units (FSRU), floating storage units (FSU), as well as cruise ships, LNG vessels and scrubbers installations.
  • Sembcorp Marine’s order book stood at S$2.2bn, which includes S$280m of ship repair work. The outlook for ship repair is positive as customers generally want to expedite work. Sembcorp Marine is only limited by workforce constraints.

Reiterate Hold, with a lower Target Price of S$0.46 (TERP: S$0.24)

Balance sheet weaker, right-sizing ongoing

LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2020-07-15
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.457 DOWN 0.800