Thursday, 7 August 2014

SembCorp Marine

Kim Eng on 4 Aug 2014

  • 2Q14 PATMI of SGD131.6m (+5.4% YoY, +7.5% QoQ) in line. Interim DPS of 5.0 SGD cts declared.
  • Ship repair revenue flat at SGD150m. Operating margin up 0.4ppt QoQ to 11.5%.
  • Maintain HOLD on muted order outlook. TP still at SGD4.04, 0.71x EV/backlog or 0.5SD below its 10-year mean.
In line; 2H seasonally stronger
1H14 PATMI was up 4.3% YoY, making up 44% of our FY14E and 43% of consensus forecasts. 2H is seasonally stronger due to the conclusion of variation orders. Operating margin crept up to 11.5% (1Q14: 11.1%, 2Q13: 13.0%), on track for our full-year forecast of 12.0%. An interim DPS of 5.0 SGD cts was declared.

Muted order outlook
Its first Sete Brasil drillship, which was supposed to be in Brazil after the World Cup, is now expected to reach Brazil at end-October. SMM remains confident of delivering the vessel on time (Jun 15). It also stressed that the construction of its Jurong Aracruz yard in Brazil is on track, with initial operations to start in 2H14 and full completion in 2015. Ship repair revenue was flat despite higher capacity from its Tuas integrated yard. More vessels were repaired (1H14: 226 vs 1H13: 176), but average revenue per vessel fell on a weaker shipping market.
SMM expects more FPSO orders but sees near-term weakness for other product types, consistent with our view. It remains optimistic on the longer term, citing strong enquiries from customers. YTD new orders of SGD2.5b formed 57% of our full-year forecast. Net orderbook was SGD12.7b.
Minimal changes to our forecasts (<0.1%). Maintain HOLD and TP of SGD4.04, pegged to 0.71x FY15E EV/backlog, or 0.5SD below its 10-year mean of 0.90x due to its weaker backlog quality and order momentum.

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