Sembcorp Marine

UOBKayhian on 28 Apr 2015

FY15F PE (x): 12.3
FY16F PE (x): 12.9

Sharply lower ship repair revenue. Sembcorp Marine (SMM) posted a net profit of S$106m (-14% yoy) for 1Q15. Results were below our expectations due to: a) a sharp 37% yoy fall in ship repair revenue from S$158m to S$100m, and b) a higher effective tax rate of 19.4% in 1Q15 vs 17.1% in 1Q14. Management attributed the lower ship repair revenue to a poor shipping market environment and the absence of large repair jobs (eg gas carrier repairs) due to a timing difference. 1Q15’s operating margin was weak at 10.6% (4Q14: 16.1%, 3Q14: 10.0%, 2Q14: 11.5%, 1Q14: 11.1%). Excluding a forex translation loss of S$10.9m, operating margin would have been higher at 11.4%. At U$70/bbl for Brent oil price, we estimate a 1-year forward P/B is 2.1x for large-cap shipyards. We peg SMM at a 15% discount, translating into 2016F P/B of 1.8x. While we have cut our earnings forecasts for 2015-17 by 4-5%, our target price for SMM remains unchanged at S$2.92 as we have lowered our projected DPS. Entry price: S$2.50.