Sembcorp Marine - CGS-CIMB Research 2021-02-24: Continuing Losses But Proxy To Oil


Sembcorp Marine - Continuing Losses But Proxy To Oil

  • Sembcorp Marine recorded net loss of S$583m in FY20 (FY19: S$137m net loss), 50% wider than our forecast of -S$389m, mainly due to S$144m impairment.
  • No orders were secured in FY20, but management is hopeful to see stronger wins in FY21F. Net order book stood at S$1.8bn including repairs.
  • We expect losses to continue till FY23F. Our HOLD call is premised on deep valuation of Sembcorp Marine and potential proxy to recovering oil price.

Poor performance in FY20; deepening net losses

  • Sembcorp Marine (SGX:S51) recorded a net loss of S$583m for FY20, 50% wider than our forecast of -S$389m. 2H20 revenue plummeted 55% y-o-y to S$604m on the back of lower revenue recognition from rigs and floaters (S$215m, -75% y-o-y), repairs & upgrades (S$167m, -54% y-o-y), and specialised shipbuilding projects (S$20m, -27% y-o-y).
  • Poor topline growth was largely attributed to delays in project execution and completion arising from the COVID-19 pandemic.
  • Aside from weaker revenue growth, Sembcorp Marine's FY20 net losses were further dragged down by impairment losses incurred totaling S$144m, comprised of impairment loss on marine charter vessel (S$49m), provisions for the reinstatement of Tanjong Kling Yard (S$75m) as well as write-down of unused jack-up drilling package (S$34m). Excluding exceptional items, Sembcorp Marine's FY20 net loss was S$439m.
  • There is no need for impairment for its Brazilian yard as it is relatively new and built as an integrated yard with advanced technology to meet requirements for new projects. The yard is expected to be useful for 30-50 years.

Decline in FY20 net order book but order win visibility improved

  • Project activity levels in FY20 were dampened as a result of COVID-19 disruptions, with Sembcorp Marine recording no new orders won for the year. Order book stood at S$1.82bn for FY20 (FY19: S$2.44bn), comprising S$1.51bn in projects under execution and S$0.31bn in ongoing repairs and upgrade projects.
  • The bulk of projects under execution come from floaters (S$634m), offshore platforms (S$472m), and drillships (S$311m). Sembcorp Marine did not cancel any of its existing projects in FY20 and was able to deliver several green projects.
  • Tender activities improved significantly from 4Q20 as Sembcorp Marine expects order momentum to be stronger in 2021. We have penciled in S$1bn order wins for FY21F (2019: S$1.5bn).

Losses to continue in FY21F; slow recovery in 2H21F

  • Sembcorp Marine's management expects losses to continue in FY21F, but we expect it to narrow y-o-y as projects under execution begin to deliver (11 out of 15 existing projects to be delivered in FY21F). This includes one of the two Transocean drillships (unit 1 is 85% completed).

Reiterate HOLD; Sembcorp Marine as oil price proxy

LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2021-02-24
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.141 UP 0.139