Sembcorp Marine (SMM) reported a 1.5% YoY rise in revenue to S$997.6m and a 4.3% fall in net profit to S$229m in 4Q11 such that FY11 net profit was 8% higher than our expectations. This was mainly due to foreign exchange gains and substantially lower general and administrative expenses in 4Q11. Besides lower margins going forward, we also note that there are hardly any major catalysts left in the medium term after Petrobras awards its drillships orders. We have tweaked our estimates to take into account our higher new order wins assumption and updated the market value of SMM’s stake in Cosco Corp. As such, our fair value estimate rises from S$5.63 to S$5.70. SMM’s stock price has rallied about 37% YTD vs the STI’s 12% rise and the FTSE Oil and Gas index’s 24% gain. As we now see limited upside potential in the stock price, we downgrade SMM to HOLD.
FY11 net profit slightly above expectations
Sembcorp Marine (SMM) reported a 1.5% YoY rise in revenue to S$997.6m and a 4.3% fall in net profit to S$229m in 4Q11, bringing full year revenue and net profit to S$3.96b and S$751.9m, respectively. FY11 net profit was 8% higher than our expectations, and this was mainly due to foreign exchange gains of S$10.4m in 4Q11 and substantially lower general and administrative expenses (S$34.2m, 50.4% lower YoY) with lower bonus provisions compared to 4Q10.
Expecting lower margins going forward
Management has guided operating margins of 15% or lower for FY12, vs FY11’s 18.6% and FY10’s 20.7%. Margins may also be lower in FY13 when the new Brazilian yard comes into operation as there could be initial teething problems, and it also pays to be prudent to assume conservative margins for SMM’s first drillship in Brazil.
Hardly any major catalysts left after Petrobras
There has been ample coverage on Petrobras’ rig orders and it is quite likely that the market has priced in these expectations in SMM’s stock price by now. We have also highlighted the possibility of new semi-submersible rig orders in our earlier reports with the tightening of the deepwater market. However, these have been reflected in our new order wins estimate of S$8.7b. Hence though there could be a positive knee-jerk reaction in the stock price when the Petrobras orders are awarded, we do not see any other major re-rating catalysts in the near term.
Limited upside; downgrade to HOLD
We have tweaked our estimates to take into account our higher new order wins assumption and updated the market value of SMM’s stake in Cosco Corp. As such, our fair value estimate rises from S$5.63 to S$5.70. SMM’s stock price has rallied about 37% YTD vs the STI’s 12% rise and the FTSE Oil and Gas index’s 24% gain. As we now see limited upside potential in the stock price, we downgrade SMM to HOLD.
Sembcorp Marine (SMM) reported a 1.5% YoY rise in revenue to S$997.6m and a 4.3% fall in net profit to S$229m in 4Q11, bringing full year revenue and net profit to S$3.96b and S$751.9m, respectively. FY11 net profit was 8% higher than our expectations, and this was mainly due to foreign exchange gains of S$10.4m in 4Q11 and substantially lower general and administrative expenses (S$34.2m, 50.4% lower YoY) with lower bonus provisions compared to 4Q10.
Expecting lower margins going forward
Management has guided operating margins of 15% or lower for FY12, vs FY11’s 18.6% and FY10’s 20.7%. Margins may also be lower in FY13 when the new Brazilian yard comes into operation as there could be initial teething problems, and it also pays to be prudent to assume conservative margins for SMM’s first drillship in Brazil.
Hardly any major catalysts left after Petrobras
There has been ample coverage on Petrobras’ rig orders and it is quite likely that the market has priced in these expectations in SMM’s stock price by now. We have also highlighted the possibility of new semi-submersible rig orders in our earlier reports with the tightening of the deepwater market. However, these have been reflected in our new order wins estimate of S$8.7b. Hence though there could be a positive knee-jerk reaction in the stock price when the Petrobras orders are awarded, we do not see any other major re-rating catalysts in the near term.
Limited upside; downgrade to HOLD
We have tweaked our estimates to take into account our higher new order wins assumption and updated the market value of SMM’s stake in Cosco Corp. As such, our fair value estimate rises from S$5.63 to S$5.70. SMM’s stock price has rallied about 37% YTD vs the STI’s 12% rise and the FTSE Oil and Gas index’s 24% gain. As we now see limited upside potential in the stock price, we downgrade SMM to HOLD.
No comments:
Post a Comment