Sembcorp Marine - UOB Kay Hian 2021-07-30: 1H21 A Significant Loss Due To Provisions


Sembcorp Marine - 1H21 A Significant Loss Due To Provisions

  • While we were prepared due to the profit warning, the magnitude of Sembcorp Marine’s S$647m loss for 1H21 was nevertheless shocking as it was 11% higher than the loss made for the whole of 2020.
  • Excluding post-tax provisions of S$472m, Sembcorp Marine nevertheless generated a loss of S$175m with the mild highlight being zero project cancellations year-to-date.
  • Maintain HOLD with a fair value of S$0.124.

Sembcorp Marine reported 1H21 net loss of S$647m.

  • Sembcorp Marine (SGX:S51) reported a pre-provision net loss of S$175m; however, including post-tax provisions of S$472m, its net loss blew out to S$647m vs the full-year loss of S$583m reported in 2020. At the top-line, Sembcorp Marine saw a 7% y-o-y decline in revenue to S$844m due to production delays as a result of COVID-19 restrictions.
  • The significantly higher provisions in 1H21 resulted mainly from COVID-19 as Sembcorp Marine had to factor in S$361m in additional labour and other costs to complete its suite of projects in hand. In addition, a further S$65m in yard reinstatement costs were provided for, as well as a S$46m asset impairment loss.

What is there to look forward to for Sembcorp Marine?

  • Clearly, it will be critical for the company to successfully raise the much-needed S$1.5b via its rights issue. Apart from that, Sembcorp Marine management also talked about > 10 active tenders that it currently has for 10 renewable solutions, “multiple projects” within the FPSO/FSO/FPU segment as well as pre-Final Investment Decision engineering work for the deepwater Cambo field west of Shetland, United Kingdom.
  • Operationally, offshore platforms were the sole highlight with a 128% y-o-y increase in revenue to S$296m for 1H21. Three of the notable offshore-platform projects were related to offshore wind farms with ~34% of the company’s net orderbook related to green energy solutions.

Labour continues to be an issue.

  • During the analyst briefing, Sembcorp Marine's management stated that there were no new workers from crucial piece of the puzzle remains a successful rights issue in 3Q21.

Downgrading Sembcorp Marine's earnings forecast for 2021.

Sembcorp Marine's share price catalyst

  • Successfully raising S$1.5b via its rights issue, which the company is targeting to complete by 3Q21.
  • New orders for rigs, offshore renewable installations or fabrication works.
  • Merger or JVs with other shipyards.
  • Tightening of inbound travel rules for Singapore, thus further crimping Sembcorp Marine’s access to labour.

Adrian LOH UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-07-30
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.124 SAME 0.124