Investors, who are turning bullish on Sembcorp Marine (Sembmarine) given the positive Covid-19 vaccine news, may need to dial down their optimism.
Sembmarine’s financials are likely to deteriorate further given that it has not won new orders this year, according to UOB KayHian.
Worse, the company is witnessing delivery delays into 2021, which will negatively impact its near-term working capital and cash flow, the brokerage warns.
This is despite the company’s yards are back to full capacity and its repairs & upgrades business segment is “busy”, it notes.
As a result, UOBKH has downgraded the stock to “sell” with a target price of 12.5 cents.
According to the brokerage, Sembmarine’s share prices has risen 33% from Nov 9 to Dec 9.
This is due to a turnaround in market sentiment after the announcement of positive vaccine trials in early November, says UOBKH.
Nevertheless, the brokerage warns that the prolonged downturn will likely persist for at least the next 12 to 18 months.
It believes that crude oil prices are not high enough for exploration capital expenditure to resume in a meaningful way as rigs are oversupplied globally.
Prices of black gold, it says, need to be more than at least US$50 a barrel over a long enough period for oil companies to have confidence to spend on offshore exploration.
“We do not believe it is time to buy [Sembmarine] yet, given that it is a second-derivative play on oil prices,” UOBKH analyst Adrian Loh writes in a note dated Dec 14.
As at 11.19 am, Sembmarine was flat at 14.6 cents with 30.1 million shares changed hands.