SINGAPORE (July 29): RHB is maintaining Sembcorp Marine on “neutral” with a target price of $1.65 on bets that the O&M player will to be able to play catchup in 2H17 with its projects at hand.
RHB expects orderbook replenishment to continue to be slow in FY17 but could start to pick up in FY18, if the oil price continues to stabilise.
In a Thursday report, RHB says demand for drilling solutions is weak to almost non-existent, given oil prices continue to trade in the US$50-55/bbl band.
On a more encouraging note, SembMarine has mentioned that enquiries for non-drilling solutions, offshore platforms and floaters have started to pick up.
The International Maritime Organisation has deferred the requirement for ballast water treatment by two years, which would affect Sembcorp Marine’s ship conversion and repair revenue.
However, SembMarine is reporting an uptick in LNG and cruise ship repairs and upgrades and current projects at local yards, a semi-sub crane vessel, floating systems, as well as work at its overseas yards would keep the company busy in the near term, says RHB.RH
To recap, SembMarine posted 1H17 core earnings of $30 million. Revenue came in lower by 23% at $1.4 billion due to lower work orders across all segments, its lowest recorded revenue since 2006.
See: SembMarine 2Q earnings halved to $5.6 mil
Net profit came in at $45 million, and after stripping one-off items, core profit came in at $30 million for 1H17. On a quarterly basis, Sembcorp Marine is back in the black compared to 1Q17, when it recorded a core loss of $17 million.
The outflow of cash from operations came in at $247 million, due to increased payment to creditors. Capex spending for 1H17 came in at $98 million, which should trend lower going forward, as most of the capex for its yards has been expended.
The current orderbook for SembMarine stands at $3.6 billion, compared to $4 billion at end 1Q17, with projects across drilling and non-drilling solutions. Year to date, the company has secured $75 million of orderbook replenishment coming from offshore platforms and the floating solution segment.
The orderbook of $3.6 billion has excluded Sete Brasil drillship contracts which are valued at $3.1 billion, as that project has been postponed for the time being.
“We estimate the company would be able to at least add another $500 million to its orderbook in FY17,” says RHB.
Update: Shares in SembMarine closed 4 cents lower at $1.70 on Friday.
