SEMBCORP MARINE LTD (SGX:S51)
Sembcorp Marine - COVID-19 Losses, But Projects Not Cancelled; BUY
- Sembcorp Marine 1H20’s SGD192m net loss compares with our and consensus pre-results FY20F loss of SGD60m and SGD85m – worse than expectations.
- Management guided for losses to continue into the foreseeable quarters. We raise our FY20F losses, as we cut our full-year contract wins to SGD600m vs FY19’s SGD1.49bn.
- Whilst Sembcorp Marine's share price could react negatively in the near term, we view the rights issue as a positive that will strengthen Sembcorp Marine’s balance sheet and help raise orderbook.
- Keep BUY with a new P/BV-based SGD0.55 Target Price from SGD1.13, 20% upside.
Sembcorp Marine's 1H20 revenue plunge due to rigs & floaters segment.
- Sembcorp Marine (SGX:S51)'s 1H20’s revenue of SGD906m was down 41% y-o-y. The rigs & floaters segment’s 1H20 topline of SGD459m was down 62% y-o-y on lower production activities from COVID-19 stand downs. See Sembcorp Marine Announcements.
- On a positive note, repairs & upgrades recorded a 1H20 revenue rise of 5% y-o-y to SGD258m. This was due to higher revenues per vessel on recognition of several upgrade projects for floating storage & regasification vessels or FSRUs and cruise ships.
No significant new contracts secured in 1H20, but orderbook remains respectable.
- Sembcorp Marine’s net orderbook as at end June was SGD1.91bn (Dec 2019: SGD2.44bn). In addition, the repairs & upgrades business has outstanding orders for execution of SGD280m. We have assumed 2H20 new contracts secured of SGD600m.
We forecast an FY20 net loss of SGD290m
- We forecast an FY20 net loss of SGD290m vs our previous SGD60m loss estimation. This assumes a 2H20 loss of SGD98m, ie half that of 1H20.
- Management said COVID-19 led to the unavailability of workers to work on projects during this period due to the lockdowns. However, Sembcorp Marine has a list of projects awaiting execution. Hence, as workers are now allowed to commence work, revenue should improve. The company also said that none of its projects have been cancelled.
The impending rights issue should strengthen Sembcorp Marine’s balance sheet.
- Sembcorp Marine's 1H20 capex of SGD58m was less than a third of 1H19’s. The company aims to keep capex low and only incur maintenance capex for the safety and operability of yard facilities. At end June, net gearing stood at 1.35x, excluding the SGD1.5bn subordinated loan from Sembcorp (SGX:U96) (BUY, Target Price: SGD2.11, see report: Sembcorp Industries - RHB Invest 2020-06-09: Future Focus: Energy & Urban; Keep BUY).
- The proposed rights issue should lower net gearing to a proforma 0.45x.
Our target price for Sembcorp Marine assumes the rights issue’s completion.
- We lower our Target Price to SGD0.55, which is calculated backwards based on the Target Price post completion of the rights issue. After the latter, Sembcorp Marine’s FY20F BV/share will fall to SGD0.32 from FY20F’s SGD1.90 pre-rights, while our post-rights Target Price is SGD0.26, ie 0.82x BV, 1.5x SD below the 5-year average of 1.36x.
- See Sembcorp Marine Share Price; Sembcorp Marine Target Price; Sembcorp Marine Analyst Reports; Sembcorp Marine Dividend History; Sembcorp Marine Announcements; Sembcorp Marine Latest News.
Leng Seng Choon CFA
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-07-16
SGX Stock
Analyst Report
0.55
DOWN
1.130
