SINGAPORE (April 28): CIMB expects Sembcorp Marine’s share price to come under pressure in the short term given the weak 1Q17 results.
SembMarine posted 1Q17 core loss of $7 million vs CIMB’s consensus expectation of $24 million profit despite a $47 million of divestment gain.
1Q17 EBIT margin came in lower at 1.8% compared to FY16 average of 6.4% due to additional costs incurred for a floater. Excluding that, EBIT was similar to 4Q16’s at 8%.
SembMarine is still hopeful of securing some orders from Gravifloat, albeit taking longer to come to fruition. Year to date, orders were mainly variation order of $75 million.
In a Friday report, Lim Siew Khee says, “We would not have guessed SembMarine would incur additional costs on a floater project which caused 1Q17 EBIT margin to dip to 1.8% from 8% in 4Q16. Excluding the gain of $46.8 million from the divestment of its stake in Cosco, SembMarine made a core loss of $7.2 million. The losses would have been worse if not for the positive tax of $2.8 million, and forex gain of $3.9 million and miscellaneous income of $7.2 million.
1Q17 revenue of $760 million came in line with CIMB’s expectation, forming 25% of FY17 forecasts.
The underperformance of rigs and floaters, with lower revenue of $347 million, was offset by stronger offshore platform revenue of $302 million, helped by Maersk Culzean topside jobs.
Ship repair revenue was a slight miss at $90 million with 111 vessels repaired at slightly better average value per vessel of $0.81 million.
SembMarine has blamed the weak 1Q17 EBIT margin to additional costs incurred on a floater project which CIMB believes to be the FPSO delivered to OOGTK, originally contracted at US$696 million.
SembMarine expects settlement with the customer to be finalised in 2Q17 and that excluding those costs, 1Q17 EBIT margin would not have differed materially from 4Q16's (8%).
On rightsizing, SembMarine has cut 9,000 of its workforce since 2015 to the current 12,500 staff.
Net debt deteriorated slightly to 1.18x in 1Q17 vs 1.14x at end Dec, likely due to a timing issue from receipt from customers.
We believe cashflow could improve in 2Q17 as SembMarine expects to receive final payment from OOGTK’s FPSO when the vessel reaches its Brazil.
1Q17 capex of $52.7 million was higher than previous guidance. We now expect FY17 capex of $180 million.
“We tweak our FY17 EBIT margin to 6% from 6.7%, and cut our FY17F EPS by 3% to incorporate lower tax and higher depreciation,” says Lim.
Shares of Sembcorp Marine are down 6 cents at $1.67.
