Sembcorp Marine

Kim Eng on 6 Nov 2012

Below expectations due to recognition n timing. Sembcorp Marine’s (SMM) 3Q12 results came in below our eexpectations with revenue of SGD892.4m (-31% YoY, -27% QoQ) an nd corresponding PATMI of
SGD115.5m (-48% YoY, -19% QoQ). The e lower performance was due to timing of recognition wherein only one e jackup unit achieved initial percentage of completion revenue recognittion. We expect revenue and  profit to be back-end loaded in 4Q12 with h more initial recognitions of jackup units and its first Sete Brasil drillshipp contract. Maintain Buy with  target price lowered to SGD5.90.

Margins came in stronger. 3Q12 ope erating margin did turn up  sequentially higher to 14.1%. Stripping out forex effects, operating  margin would have been 15.5%, in line e with our expectations. We  believe that SMM would be able to achiev ve slightly higher margins for  4Q12, with some potential variation order rs. But this could be partially offset by more conservative margins for the first Sete Brasil drillship contract in which SMM aims to achieve initiial recognition in 4Q12.

Order flow remains strong and hea althy. YTD orders secured amounted to SGD9.1b and net orderboo ok now stands at record of SGD12.1b with deliveries till 2019. We remmain optimistic of new order flows given strong market fundamentaals and healthy customer enquiries.

New yard to add to ship repair volume. Phase one of new Tuas yard would be operational in 2013. The increa ased capacity of 1.55m dwt would support more ship repair busineess. Based on preliminary guidance, ship repair revenue could possib bly be bumped up to SGD1.11.2b p.a. in FY14F, from usual levels of abo out SGD650m p.a.

Trimming forecasts, maintain Buy. 3Q Q12 numbers differ from our expectations mainly due to project recog gnition timing. We adjust our project recognition schedule and trim FY12 2-14F margin assumptions by
0.2-1.2ppt for conservative sake. Corr responding net profits are consequently reduced by 3.6-7.2%. Our SSOTP-based TP is lowered to SGD5.90. Maintain Buy.