Sembcorp Marine - CGS-CIMB Research 2020-11-11: Execution Of Orders First Before New Ones

SEMBCORP MARINE LTD (SGX:S51)

Sembcorp Marine - Execution Of Orders First Before New Ones

Sembcorp Marine’s yards are operating at pre-COVID-19’s full workforce capacity (c.20k). Sembcorp Marine remained in a loss in 3Q20 and guided for losses in 4Q20F.
Order book at S$1.78bn (-7% q-o-q) with c.S$0.33bn of new ship repair and upgrade contracts. Sembcorp Marine is tendering for > 10 projects in renewable energy.
Downside risk is capped with no funding risk but losses and lack of orders could limit share price outperformance. Reiterate HOLD on Sembcorp Marine; target price raised to S$0.14.

Sembcorp Marine (SGX:S51)'s yards activities resumed in early-July and are now operating at close to pre-COVID-19’s full workforce capacity (including sub-contractors) of 20k. Delivery dates for most of Sembcorp Marine’s existing projects have been rescheduled by 3-12 months although there has been no project cancellation. Therefore, we gather that Sembcorp Marine is focusing on resuming these projects instead of aggressively chasing new projects, albeit the bidding landscape has improved q-o-q.
Sembcorp Marine remained in a loss in 3Q20 and guided for losses in 4Q20F.

Sembcorp Marine’s order book is at S$1.78bn (-7% q-o-q) with c.S$0.33bn of new ship repair and upgrade contracts. The group delivered the Tangguh LNG modules in Jun 20, the Offshore Windfarm Jacket foundations for the Hornsea 2 project in Aug 2020 as well as started Tupi P-71 newbuild FPSO and FSU CNTIC VPower Energy.
Sembcorp Marine said that it is tendering for more than 10 renewable energy projects, including wind turbine vessels and high voltage transformers as well as gas solutions. Margins for renewable projects are better than conventional offshore projects where competition is stiff. However, the learning curve for some of the new gas projects may still be steep (margin pressure).

Sembcorp Marine remained in a net current liability position as of 3Q20 but expects to return to net current assets in FY21F. Our Sembcorp Marine's FY20F-21F EPS forecast are cut by 35-115% to reflect slower execution and lower margins. Our order assumptions for FY20F and FY21F of S$300m and S$500m, respectively, remain intact. We estimate increased working capital needs to execute stalled orders and expect net gearing of 0.68x by end-20F.
Our target price for Sembcorp Marine is adjusted to reflect the latest S$2.1bn rights issuance and is now based on 0.5x CY21F P/BV on 2020 year-to-date average.
See Sembcorp Marine Share Price; Sembcorp Marine Target Price; Sembcorp Marine Analyst Reports; Sembcorp Marine Dividend History; Sembcorp Marine Announcements; Sembcorp Marine Latest News.
Key downside risks include protracted order drought and cost overruns.
Sizeable order wins could re-rate the stock.

LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2020-11-11

SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.139 UP 0.129