SMM

SMM: 1Q15 net profit badly missed estimates, falling 13.6% to $105.9m, while revenue dipped 2.4% to $1.3b.

The dip in top line was largely driven by weakness in ship repair revenue, which fell 36.5% y/y and q/q to $100.1m. 116 ships were repaired in 1Q15 vs 106 in 1Q14, but average revenue per ship was lower. Meanwhile, rigbuilding revenue fell -5.4% y/y (-13.8% q/q) to $753m.

Operating margins fell 0.5ppt y/y (-5.5ppt q/q) to 10.6%, in part due to a $10.9m of FX loss and $2.2m of fair value loss of financial instruments.
An accommodation semi-submersible and a jack-up rig were delivered in the quarter, while there are nine other rigs to be delivered in the year. YTD, only $56m worth of contracts was secured. Net order book shrunk to $10.6b from $12.9b in 1Q14, with deliveries stretching to 2019.

SMM has a sizeable LOI for a semi-submersible crane vessel with Hareema Offshore, which could be worth between US$700-US$1b, which should materialize this year. Nevertheless, Maybank-KE cuts order-win target to $2.7b from $3.6b on expectations that SMM could fall short.

Management also expressed bearishness, citing a scarcity of orders, and customers are either not renewing their charter contracts or are renewing at significantly lower rates. New rigs also face the prospect of not securing charters despite being more sophisticated.

On the Brazilian drill ships that SMM has not received payment since Nov’14, management is exploring all options, including slowing down construction.

SMM is currently trading at 11.7x FY15 consensus P/E, and 2x P/B.

Latest broker ratings:
UOB KayHian maintains Hold with TP of $2.92
Daiwa maintains Underperform with TP of $2.80
CIMB maintains Reduce with TP cut to $2.61 from $2.82
Goldman Sachs maintains Neutral with TP shaved to $2.60 from $2.70
Deutsche Bank maintains Sell with TP of $2.50
Maybank-KE maintains Sell with TP cut to $2.45 from $2.65