Sembcorp Marine

Sembcorp Marine: (S$2.70) 2Q15 profit sank below expectation and could go deeper

Sembcorp Marine’s (SMM) 2Q15 net profit dived 17% y/y to $109.2m. This took its 1H15 earnings to $215.1m (-15.3%), representing 43% of full year consensus estimate.

Revenue sank 9.9% to $1.2b on lower recognition for rig building projects at $622.6m (-28.7%), albeit partially shored by ship repair as well as offshore and conversion projects, which rose to $165.7m (+13.7%) and $401.8m (+33.3%) respectively. On delivery front, it only delivered one semi-submersible in 2Q15, while another 16 rigs remain work-in-progress.

Notwithstanding a $16.9m fair value loss on FX derivatives, operating margin inched up 0.7ppt to 12.2%, in part due to greater sales mix of higher margin ship repair segment as well as recovery in offshore margin.

During the quarter, the group bagged US$1b semi-submersible contract from Heerema Offshore Services, taking ytd order win in 1H15 to $1.35b or about half of the $2.5b it won in 1H14. As a result, net order book dipped 5% lower $10.9b, a far cry from the peak of $14.4b in Jun '13.

On the ill-fated seven Brazilian drillship orders, payments have been suspended since Nov’14 with outstanding payments of $160m, SMM has since slowed construction, with four ships at 80+%, 74%, 60% and 30% completion.

This has led to negative cash flow of $358.6m in 2Q15. Together with other potential delivery deferrals by Oro Negro, the Brazilian woes could strain SMM’s liquidity and impact its future dividend payout.

To this end, the group has trimmed its interim DPS by 20% to $0.04.

Moving forward, management guided a tepid outlook amid persistent low oil prices hampering capex of oil players, thereby leading to weaker demand for new rigs and more deferrals in rig deliveries.

At its current price, SMM is trading at 11.4x FY15 P/E and 1.8x P/B.

Latest broker ratings:
Nomura maintains Buy with TP of $3.85
OCBC maintains Hold, cuts TP to $2.62 from $2.77
RHB maintains Neutral, cuts TP to $2.60 from $2.70
Daiwa maintains Underperform with TP of $2.56
Deutsche maintains Sell, cuts TP to $2.30 from $2.50
KGI maintains Sell, cuts TP to $2.06 from $2.57
Maybank-KE maintains Sell, cuts TP to $2.00 from $2.45